Basically, a Blu-Ray disc is a new DVD format, specifically geared towards high definition movies and the likes. A regular DVD right now holds 4.7 GB of info on one side; a Blu-Ray disc holds 25 GB. Basically, in gaming, having this much space would mean developers adding more features in games, and extending the gameplay. For anyone who thought GTA San Andreas was big (3 cities), on a Blu-Ray disc you could play the whole world. For basketball games, it would mean more minigames, and more detail in gameplay.
Blu-Ray players will come out this summer, with beginning prices of $1000 US. Movies will also come out as well on Blu-Ray with HD resolutions and more special features. Currently, the Blu-Ray disc, backed by Sony, is competing with another format, HD-DVD, which Microsoft is backing. The XBOX-360 will soon have a HD-DVD add-on, but the games on the system will still come on DVDs, which has a significantly lower capacity. A Blu-Ray disc holds 25 GB, a HD-DVD holds 15 GB. A war is being predicted, and the winning format will likely become the new medium, taking over the DVD. Sony is hoping that by equipping the PS3 with a Blu-Ray Drive, it will push a lot of Blu-Ray players into homes. When these people buy the PS3, they would look at buying Blu-Ray movies, which is basically the goal both formats try to achieve.
Think of this as the new DVD taking over VHS thing that happened around 2001. Coincidentally, the PS2's release with a built-in DVD drive pushed a lot of DVD players into homes. Can the PS3 do the same for the Blu-Ray format? Sony sure hopes so.
However, if you don't have a HDTV, none of this would be relevant. But playing on the XBOX 360 and PS3 won't be as nice as well.