Disney has photographers throughout the parks in front of key landmarks, some attractions, and with some characters. The photographer will give you a card after they take your picture. You then give that card to PhotoPass photographers all over the parks, and they will take your pictures, likewise with your own camera if you ask. They also do fun things like putting Tinkerbell, Stitch, and Simba in the pictures if taken in the right spot. At the Judges Tent in ToonTown, PhotoCenter in EPCOT, and in the Grand Floridian, and Scrapbook store in DTD, you can burn the pics onto a cd. They can fit up to 400 pics(officially) on a cd. The cd costs $99, but you get the copyright to print the pictures at home instead of paying $12.95 for one pic from Disney. In the past, they allowed you to put borders and autographs on the pics, but I've seen recent conflicting reports that say that option is no longer available. If you get the card, you are not obligated to buy anything. Multiple cards can be combined onto one cd, and ride pictures are not part of the service at this time, though they are working on that.
Personally, I loved PhotoPass. We got some great pictures and in some cases, the pic on my camera didn't turn out, but the PhotoPass meant that the pic was not lost. Plus, it was really nice to have someone take the picture so we could all be in it.