Apple TV is a tiny media streaming device from Apple. The basic functions of the Apple TV are to allow users to stream rented content from Apple directly to a TV.
Using Airplay, the Apple TV can connect to a computer that is running iTunes. In this way, all the music, photos, and video on that computer's iTunes can be played back through the Apple TV. In this way, TV shows and movies can be purchased (instead of rented). Then these files stream to the Apple TV.
Also available is access to Netflix for those users that subscribe to that service.
Ideally, you'll use a receiver to playback the audio from the Apple TV.
Outputs are limited to optical for audio and HDMI for audio and video. Video maxes out at 720p, but at the moment this is what all iTunes HD and nearly all Netflix HD is limited to as well. Both wired and wireless connections are available.
Roku is a similar device.