In short, it just lets you watch HD movies (blu-ray and HD-DVD). HDCP is required to display HD movies in full HD. You need both an HDCP monitor and video card, along with the proper HD/blu ray drive.
Its mostly just an annoyance so you cant copy movies.
HD-DVD and Blu-ray drives are pretty expensive. You can get a bluray burner for around $1,000. I think the cheapest HD-dvd rom is the xbox 360 USB drive for about $180.
I think the cheapest blu-ray player is actually the PS3. You can get combo drives (that read both) for a few hundred more.
The most cost efficient way to go blu-ray at the moment is with a PS3. Since it can also play and upscale DVDs to 1080i, which actually looks a good amount better than a DVD not being scaled. Ever watch a DVD on a 60inch dvd through analogue cables? Let me tell you, it's like watching your tv vomit on your eyes.