This is Valve Software's great scheme for world domination. It is a system allowing for the seamless integration of many of the more troublesome aspects of playing a modern multiplayer game, things like keeping the game up to date, going to the store and buying them, finding servers for the game, IM'ing your friends while playing, Valve getting paid gobs of money, and maintaining world peace. Other, loftier terms like "content management system" or maybe "content delivery system" have been bandied about, but for my sake and for the sake of you the reader, I will try and avoid such marketing buzz.
Steam acts as a front-end to all of Valve's products. All of their games and their mods are launched through it (though it is possible to create a shortcut to launch a specific game directly, they are still being run via Steam), and the server lists for the multiplayer games are all in one place. It also contains an IM client through which various parlor games (chess, checkers, &c) can be played.
The true genius of Steam is that it allows users to buy games online. In order to use Steam you must have an account, with the username and password this implies. If you have an old Half-Life CD key, you can associate it with your account. Once you have done this, you can download Half-Life and its assorted Valve-supported mods to any computer you happen to be logged into as that account (note that you can only play these games then if you are logged in as the proper account, and that obviously only one person can be logged in on a given account at a time). You can then feel free to lose your Half-Life CD. Buying games over Steam is exactly the same procedure, only it associates the fact you own your new game with your account from the moment they charge your credit card.
Vivendi Universal (who owns Sierra, the plastic disc publisher of Valve's games) has in recent months expressed displeasure at the fact Valve has devised a way to make them irrelavant. Due to certain clauses in their contract with Valve, they are allowed to delay the release of the impending Half-Life 2 in both the virtual and physical realms for up to six months, even though the game is finished. This has not stopped a decent number of people from already giving Valve money for the game over Steam and "pre-loading" it, which will let them play the game the very moment this contract dispute is resolved. (As incentive to buy Half-Life 2, Valve is already letting people play Counter Strike: Source, an updated version of HL1's classic mod in the HL2 engine, once they fork over the cash.)
Aside from the costs of buying the games, the service is free to download and use, and Valve claims it will remain so. If all you want to do is play online chess or chat with your Half-Life-playing buddies, it will in fact cost you nothing. The main downside to Steam is that it really, really requires a broadband Internet connection. You poor dial-up sods may find the massive game downloads a little much, not to mention the long-commented-on disparity in online gaming between dial-up and broadband.
All told, Steam is a brilliant idea which I fully expect to flourish in the years to come. And it helps that Half-Life rocks.
Check it out at www.steampowered.com