Well it's difficult to explain and as it's such a visual technology it's best demonstrated via video. Below is a quick demo of Augmented Reality technology being used in a simple greetings card from the card company 'Hallmark'. This is a 'light-hearted' use of the technology but it's uses are infinite.
Here is an application of AR from Olympus advertising one of their new compact digital cameras.
Augmented Reality or 'AR' was developed by the French company 'Total Immersion'. It's well worth a look at their video gallery to see applications already in use by companies in the car, aircraft, amusement, and games industry to name just a few.
Here is a video of how Nissan use 'AR'