A rain garden is a garden that is planted in an area where rainwater collects. Usually they are used to catch drainage off parking lots, rooftops, and other urban and suburban areas with lots of water runoff. While they are called 'gardens', this doesn't necessarily mean flowers or vegetables. Rain gardens are often planted with marsh grass and other less-pretty plants.
Rain gardens have multiple functions. Often their primary function is as a natural water filter. Businesses with large parking lots produce a lot of dirty runoff after a rain, as water carries off oil, grease, and trash. Usually this runoff would enter a sewage system that will drain into local rivers and streams (storm drains don't often go through the sewage treatment plant). A rain garden catches the water and filters it through a layer of plants and soil, where bacteria help break down contaminates. The soil holds the water until it can evaporate, transpire, or be absorbed into the groundwater.
This 'pollution' may include nutrients, such as fertilizer carried off from fields and lawns. These wash into rivers causing algae blooms that kill fish and other oxygen-breathing water creatures. Because of this rain gardens should not be fertilized. It is generally recommended that you use local plants, which should be well adapted to living in local soil, sans fertilizer, although tolerant to extra nutrients carried in the runoff.
Rain gardens also help buffer surges in the water runoff after a heavy rain. Parking lots and roofs shed water much faster than fields and forests, resulting in sudden surges of water which cause erosion and flooding. By holding the water and releasing it more slowly, rain gardens also help keep the streams flowing more regularly, and may help prevent stream beds from drying out. Water is also absorbed into the ground, to become part of the local groundwater.
Also important, rain gardens give rainwater a chance to adjust to the ambient temperature. When rainwater hits a hot parking lot or roof it carries that heat away with it, resulting in an influx of warm water into local streams and rivers. This warm water can't carry as much oxygen as can cold water, and animals may die from the increased temperature and the decreased oxygen levels.
All of these factors come into play in each of thousands of houses and businesses in every city, which cumulatively results in a lot of very sick watershed systems. Fortunately, more and more people are including a rain garden in their landscape designs.
While the most visible ones are found next to the parking lots of big-box stores, they were originally designed for residential neighborhoods. Maryland designer Dick Brinker created the first ones1 in 1990, and was pleased to discover that he saved hundreds of thousands of dollars by building rain gardens rather than the traditional storm water management systems (curbs and drains and so forth). More and more suburban houses are including rain gardens in their yards to deal with the runoff from roofs and driveways2.
In addition to the above benefits, adding one to your lawn may improve drainage and reduce standing water, help hydrate your lawn, reducing the amount of watering needed, and attract birds and other beneficial wildlife to your yard.
A green roof also serves many of these functions, and may sometimes be considered a type of rain garden.
1. Although swales have been around for centuries.
2. If you would like to install a rain garden on your land, http://www.raingardennetwork.com/build.htm has a good overview of the process.
An Earth2 node.