Apart from sounding cool, it also does something quite useful. It allows one real computer to run multiple unreal (virtual) computers, which you can start, stop, pause and unpause. I reckon most software eventually reaches a level when it must be virtualised (clearly this is a stage after themes or sending mail), because the flexibility makes it so much more useful. Think of it as object indirection but for software packages.
While we hate software, it must also be remembered that software runs on hardware, and that it can be hateful too. Sometimes, hardware needs to be upgraded or fixed. Xen comes to the rescue by being able to save, restore and do live migration of virtual machines. Fab! No wonder systems people are excited about it. I've installed and played with it and I'm completely impressed (running Ubuntu under Ubuntu). I'm going to use it on my live systems. I'm going to use it to test software. I'm going to use it to, errr, do many things. It has two annoyances: migration requires a network file system (anyone built a good one yet?), and amd64 support isn't entirely there yet (those Opterons sure are shiny). Of course, user mode Linux does a similar thing, but check out the performance charts.
Looks like I'm a bit behind. gnat noticed xen in February and sky noticed a while ago too:
14:00 <acme> also, why didn't you tell me that xen was cool
14:00 <sky> I did
14:00 <sky> I HAVE BEEN TELLING EVERYONE XEN IS REALLY FUCKING AWESOME
14:00 <acme> then why did i ignore you
14:00 <sky> I love xen
14:00 <sky> no idea
14:00 <acme> xen is cool
14:00 <sky> you suck