You are looking at it wrong. EDIT: And yes, inflation tells you the price of goods and services. It is usually measured in reference to the CPI, which is explicitly a measure of the cost of goods and services.
What adjusting for inflation tells you is what the median American salary would have been in say... 1920 if their dollars had been worth what dollars were worth in 2006. The actual average annual salary in 1920 was about $1,200. When you adjust that for inflation using the CPI from both times, in 2006 dollars that becomes about $12,000. This allows you to directly compare purchasing power over time.
So what that chart tells you is that in modern money the average American made somewhere around $12,000 a year (in 2006 dollars) 1 century ago. The average American in 2006 was making somewhere north of $50,000. ie: the average American has the capability to purchase about 400% more than what the average American in 1920 was able to do. We are vastly, vastly wealthier.
So to use your toaster example, say a toaster cost $2 in 1920. That means it would cost about $20 today. In 1920 your salary was $1,200, which means those $2 comprised about .16% of your salary for the year. Today your salary is around $50,000. That $20 toaster comprises about .04% of your salary. That means you could afford to buy a lot more toasters.
We have become much richer over the time the dollar has lost its value, not poorer.