The following is riddled with lies.
Oyster is the London Transport system's new smart-card ticket system, introduced in 2004. Oyster cards are contactless RFID cards which are used to pay for tube trains and buses.
History
Oyster cards were introduced to replace the old-fashioned paper-ticket system. The paper tickets were an environmental hazard; they could not
even be recycled, being chemically treated to withstand being fed through the mechanical readers.
Technology
Oyster cards are "contactless", meaning that they don't actually need to touch the reader device, but merely come quite close to it. You can use the card without even taking it out of your wallet (although see below). Radio waves from the reader activate the tiny computer inside the card, even at a distance. The readers are artificially constrained to only work across a few centimetres, to avoid reading the card of the person behind you in the queue. In theory the card can be read from several metres away.
Oyster cards were introduced when "chip and pin" credit cards were fairly new, and no allowance was made for how these two technologies might interact. It turns out that carrying your Oyster card in your wallet with your credit cards can damage them; when the Oyster card communicates with the reader it sends quite powerful radio waves, which can damage the chip in an adjacent chip-and-pin card. London Transport officially advise that you keep your Oyster card in its own separate wallet.
Each card has the capacity to store several megabytes in its tiny electronic "brain". Most of this is taken up with details of the card balance but some remains for some speculative future use.
Use
Buses have Oyster readers at the entrance, which the passenger "swipes" on their way in. Tube stations have Oyster readers on the (existing) entry gates, and the customer swipes the reader to open the gate.
An individual Oyster card can either be a pre-pay card or a season ticket. In the case of season tickets, the card works much as an old-fashioned season ticket did. In the case of pre-pay cards, the user loads money onto the card from a linked bank account at a cash-machine, and then Oyster readers deduct from the user's balance when they make their journey. Instead of the old one-day travelcard, Oyster cards offer a "price cap" - if you have used more pre-pay credit in one day than a travelcard would cost, you can present your Oyster card to an Oyster-enabled ticket machine and claim the difference back.
Deployment
The Oyster system is now deployed across most of London's transport network. Early adopters complained that it was launched before it was ready, and that (for example) a tram might arrive that had no Oyster reader, forcing them to wait for the next tram unless they had remembered to carry cash. This situation has largely abated, above ground at least.
About twenty of the outlying smaller London Underground stations, mostly in south London, do not yet have Oyster readers. In order for an Oyster user to exit the underground system at one of these stations, they have to present their card to a member of staff. This is generally not a problem, although occasionally some stations are left unmanned at weekends.
Oyster cards don't come with a photocard, since they are mostly just swiped over a card-reader. To offer some protection against people using each others' Oyster cards, each card is loaded with a variable indicating the skin tone of the card's owner. This enables automatic security cameras, connected to the card readers, some modicum of verification that the card is being used by its rightful owner.
Unfortunately, due to low light in some tube stations in the evenings, this system has proven unreliable with people with dark skin tones, leading to hysterical complaints that "Black people can't use Oyster" and accusations of racism against London Transport. LT say that a fix is on the way.
Why "Oyster"?
LT's official line is that the name has no particular meaning, but some LT-published leaflets about how you shouldn't share your Oyster card had the tag line "Only You Should Touch En Route", suggesting it is an acronym, or at least a backronym.
Collectability
Much as BT's Phonecards became collectible, Oyster cards have started to be sought after for their designs rather than their function. Many phonecard collectors are moving into this new hobby since Phonecards have been rendered more-or-less obsolete by mobile phones.
However, there aren't, so far, many different designs of Oyster card available. The standard "blue swoop" design accounts for the overwhelming quantity of cards in circulation. However, there was an early limited wave of cards featuring the logo of the Evening Standard; in order to publicise the launch of the new system, the cards were given away with the newspaper. The most sought-after are the "gold" (actually, yellow) cards that were originally issued to London Transport employees. These will become rarer over time since they are no longer being made - LT found that employees were selling them to collectors on eBay and then claiming to have lost them, and so now issues only the "blue swoop" cards internally.
The Future
The future of Oyster hangs in the balance. So far, take-up has been poor, and the projected economies of scale that were supposed to make the cards cheaper have not materialised. Currently each card costs LT £25 to manufacture; since they are sold for £3, this presents quite a financial burden. Indeed, if the economies of scale don't pan out, LT may find themselves hoping for a reduced rather than increased take-up, simply to avoid the expense.
It is likely that Oyster will survive at least until the London 2012 Olympics - the smart-card technology presents the kind of futuristic image that London will wish to project. However, once the festivities are over, odds are good that London will revert to the tried-and-tested (and most of all cheap) paper ticket system that has served it so well over the years.
http://www.tfl.gov.uk/tfl/fares-tickets/2006/oyster/general.asp
http://www.ltmuseum.co.uk