Skype is a program that turns your computer into a 'VOIP' phone. You use it with an internet connection and a mic/headset. It lets you make 'calls' anywhere in the world to other users that have skype installed. Supposedly gateway connectivity is in the works to the POTS system.
Tho, I don't see it. Skype uses a proprietary protocol that does not work directly with other products from other VOIP vendors. If the technology is going to take off I'd like to see them try to be more compliant especially if they tout future compatibility with telephone networks.