There are two annual passes: the Annual Pass (AP), and Premium Annual Pass(PAP). The AP gives unlimited entry for a year to the theme parks only. The PAP also includes waterparks, Pleasure Island, Disney Quest and Wide World of Sports. The PAP is much more expensive than the AP and should be purchased only if you actually intend to do those other parks a lot. In fact having the AP gives you some single day discounts to those other parks.
Other than those differences the two are the same and also provide: (1) ability to get room discounts; (2) some restataurant (mainly DD) and merchandise discounts; (3) other various discounts on golf courses, boats, mini golf, Cirque and Hoop Dee Doo (only sometimes for either of those two as those discounts seem to come and go more often than others); (4) access to special lounges at AK (and sometimes Epcot); (5) sometimes preferred seating or viewing areas for parades, and sometimes other things. You also get a quarterly Disney Monitor, the newsletter for AP holders. You need to have only one adult AP per family to be able to get any of the discounts.
The room discounts can be announced for any particular resorts anywhere from a month to six months or longer in advance although very often it is 2 to 3 months in advance.
They are sold at the parks (guest services and ticket booths) or over the phone through Disney's main line. I do not know whether Disney Stores even sell them (the voucher) anymore (in past only some did and all may have ceased doing so). If you buy over the phone what you get is a voucher which you turn in for the pass when you arrive at WDW. In either event (whether buy there or in advance) the first official use day of the pass is when you get the official pass when you arrive for that first day at WDW. They are then renewable annually for a price less than original purchase price. Generally, if you will actually be in the theme parks 9 days or more in a year, the AP is definitely something to seriously consider. Also, possibly buying one to use for room discounts is done by a number of people.