In a nutshell: recording stuff for offline listening on your iPod or other MP3 device such as a mobile phone. The Bloglines RSS news feed concept applied to a TiVo box in your pocket.
Don't ask me the details, rexblog.com has a great summary.
Update: Scobleizer has 4 posts in a row about podcasting: why it's fun, how you can use it with Windows Media Player, why it works on other devices than the iPod, and radio coverage of the phenomenon.
Update 2: engadget now has a podcasting RSS feed...
Still suspicious about its potential ?