Really simple - think "syndication"
RSS is a simple XML format. It describes the information rather than doing markup like HTML.
It's an easy way to pull content from one place to another without worrying about the operating system, a format like MSWord, markup issues like HTML, etc. A feed item can
contain html that can be hosed, depending on who wrote it or what software was used.
As an example, look at
http://www.badbadbabes.com. This is driven by RSS feeds from several sponsors. I don't have to do anything - the software on the blog pulls the feeds in automatically. The sponsor has an easy job as well - they create posts (or articles - call it what you want) and add them to the feed.
Surfers use them with RSS readers - desktop software that pulls in feeds. It's used a lot for news, stock quotes, new message forum posts and even threads on some boards. You don't have to go to the site to see new articles/content/posts, etc - they come to you
Check out
http://www.rssreader.com/ and install it - grab a few feeds and you'll quickly understand what it does.