Google Wave was introduced at the Google I/O developer's conference in 2009 and made big enough headlines to steal Microsoft's thunder from their Bing launch.
Anatomy of a Wave:
A wavelet is a smaller branch of conversation spawned from a large wave. This is like the smaller group of party-goers having a private conversation in the kitchen while everyone else hangs out in the living room. That same group could later rejoin the larger wave.
A blip is the smallest unit of conversation. Think of a blip as a single email or a single instant message.
Next Generation Email:
Google Wave allows you to see messages near instantaneously as you type, but it also allows people who aren't logged in to join the conversation later.
A Product, a Platform, and a Protocol:
Google Wave is also a platform which lets developers create applications that work with and within Google Wave. This is like Facebook, Twitter, Google Maps and other platforms where developers make third-party apps.
Finally, Google Wave is a protocol. Google will let other companies, families, organizations, and individuals run their own wave servers. If they're all using the wave federation protocol, they should all be interoperable.
Think of this like email. You and I probably use different email servers, but we can send each other email messages. That's because our email servers communicate with each other using the same protocol. Like email, wave users will use the same username@domain address system.