It's a new service from google that allows people to communicate and collaborate in real time. It's supposed to be the new email. I haven't tried it yet (it's invite only), so I can't comment on that claim.
I've heard that they are actually in trouble over this, something about them saying that since they are not a telephone company, they can get around rules other companies that offer similar things have to follow. but I could be wrong.
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You're right, but you're thinking of google voice, not google wave. Voice is the phone service, wave is more like email, IM/chat, and a web presentation tool all in one (I think).