Really hard to explain! Best read the bit coin website FAQ.
Basically it's a P2P currency. If I have 10 bitcoins in my account, I can enter your ID and send you 1 bit coin. It's verified somehow within the network.
They have real value, you can buy and sell them for real money and goods in some places. But the weird thing about them all is you can set your computer to generate them. It brute forces some arbitary hash or something, and if you are lucky you get awarded 50 bitcoins (~$40 at the moment).
The more people generating, the harder it is to win them. But, the harder it is to win them, the less profitable it is when you take computer running costs into account. So, the electricity cost of your machine generating coins is a natural market stabiliser.
It's really strange and a very very unique take on currency.