Long story short, BitCoin is a (relatively) new "cryptocurrency".
It only gained some (relatively) serious notoriety a few months ago when it started to get featured in newspapers, radio and so on.
Needless to say, there was a near-literal explosion of demand for the currency, which made its value skyrocket... but it's far from stable and can fluctuate wildly from day to day, one day up, another day down, absolutely no guarantees whatsoever.
As you can see, it's far from stable right now, but it MIGHT stabilize eventually. Trading it for cash is not quite trivial, but it's not THAT difficult either, there are a few "trade houses" (I'm not going to recommend either one).
The only way to generate new Bitcoins is to "mine" for them.
CPUs are quite slow, video card GPUs are much better ; also, thanks to the video card architectures (long story short, has to do with number of arithmetic units), ATI cards are about 3-4 times better than NVIDIA cards of similar gaming performance.
Setting up a "miner" is not exactly trivial either (the default software only comes with CPU mining included, you have to get one of the GPU miners, configure and run them manually for each of your video cards).
If you "mine" on your own, the chances to "get the pot" of 50 BTC (on average, a new "pot" should be generated every 10 minutes or so, and some time next year the pot's going to be lowered to 25 BTC) are quite minimal, but you can join a "mining pool" and whenever the pool earns some BTC, you get paid a proportional share (there are others that simply pay constantly per share instead).
Setting up pool mining is not significantly more complicated than getting a GPU miner running (each pool has halfway decent instructions on how to do it), but, eh, it's enough to turn off quite a few less technically-inclined people.
As to WHY BOTHER with it... well, I'll say this again, there are no guarantees, but right now, at least for early adopters, it can probably pay off nicely.
Of course, the value may end up crashing, or difficulty might jump up radically, so, again, no guarantees.