A library that can display bitmap graphics as ASCII art in real time if so desired, or just simply convert graphics to ASCII art (with control characters if so desired). It's more useful for converting pictures to text, though.
It allows people to use some programs (like Quake and XaoS) in tty, though this is mostly pretty useless and only cool because of the ideas. An example of a more "important" thing that uses the library is GIMP.
Personally, I think aalib is a fine piece of software and has enabled some truly cool things, but I just don't like the attitudes... people take pictures and feed them through aalib-based programs and think those are Really Kewl ASCIIz, D00d. Back when I was younger, people did the ANSIz themselves, you know, and those things looked better, too. (Never mind about me... you have probably heard this sort of whining before. =)
The library was written by Jan Hubicka. The project now lives at <URL:http://aa-project.sourceforge.net/>.