Steam is a service created by Valve Software. Steam is a game platform, IM client, multiplayer network, automated update service, and content delivery service. Most games you would find in a store can also be bought on Steam. Once a game is bought on Steam, it is then downloaded to your computer and ready for immediate play. Updates are automatically downloaded and patched as they are released.
Pros:
Games cost the same as in stores
Convenient
Games are automatically updated
Don't need to keep track of CDs - If your computer is wiped, just redownload from Steam's network
IM and multiplayer features
Cons:
All games encoded in a DRM wrapper
If Steam goes out of business, you might lose access to your games