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Last.fm (formerly Audioscrobbler) is, well, a bunch of things. All of which are kinda cool. Firstly, it's a little plug-in that monitors your favored media player (be it iTunes or whatever), and compiles statistics based on what you're listening to, and how frequently. (Don't worry, though -- it doesn't take any personal information that can be used to sell stuff you you later, and it doesn't keep track of sources, so the RIAA can't subpoena them and find out if that copy of "How Soon Is Now?" came from an illegal mp3 or one of your thousands of Legit Copies of 200 km/H In The Wrong Lane (one for each time you listen to each track).)
The other main function of Last.fm, though -- and possibly implied in the name -- is that it also makes a (legal -- they make their royalty payments) online, streaming radio station of songs based on those statistics, combining stuff it knows you'll like along with stuff that people who like what you like also tend to like. You might find some new, cool stuff that way -- and if something sucks, you can just hit the "Never Play On This Station Again" button, and it keeps that in "mind". It's actually really cool.