Yes, it is a place to buy and sell virtual items. At this time, only some in-game items (including TF2 keys, the primary "currency" used in Steam trading) and trading cards can be bought and sold - you cannot buy/sell copies of games in your inventory.
Items are sold for a fixed price, chosen by the seller (it is not an auction). You can buy items from the market using the money in your Steam Wallet, or with paypal/credit card. When you sell an item, the money gets put in your Steam Wallet (there is no way to move that money to, say, your Paypal; it can only be used on Steam).
Valve and the company behind the game each get a percentage of the final sale price, depending on the game (generally 5% for Valve, 10% for the game's creators, minimum one cent each); the seller gets the rest (That is why there are two input boxes, one for "Buyer Pays" and one for "You Receive")
You must have Steam Guard enabled to use the Market.
You can learn more at the Steam Community Market FAQ.