What it really does is allows developers and administrators to connect other systems in webpart code and as an example an administrator could use it in the BDC application definition xml’s authentication for connecting to say a SQL database. It is wonderful in that it gives a great starting point and service for configuration and development to pull data from other systems into SharePoint (typically).
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Courtesy:http://sharepointkb.wordpress.com/2008/11/25/what-is-single-sign-on-in-sharepoint-non-technical/