What on earth does Bonjour do?

It's a zero configuration plug and play service. I've used it often on my network when our print server died. Devices that a zero configuration compatible send out a message to the network. Bonjour allows you to see these devices and connect to them easily. It's a good work around if you don't have a print server. (A computer dedicated to that.)

I'm even MORE confused now...

I think it does much more than this.

But all I know is that it allows my computer to detect and connect to printers with one click of the mouse. Very nice.

http://www.apple.com/macosx/features/bonjour/

The most an average user needs to know, is that it allows plug and play in a way

Yup... it lets computers find other computers and peripherals/users connected to them.

If you have a printer connected to an Airport, then Bonjour means that it just 'appears' in the Print dialogue.

If you're using iChat then, even if there's no wireless network, if two people have Bonjour enabled in iChat, then you'll be able to see one another.

Think of Bonjour as a local network client. If a bunch of iChat users are online in one Apple Retail Store, they can communicate with one another under the Bonjour Buddy List. This is easier rather than having to get their individual screen names and adding them yourself.

Quick question I was wondering: does iTunes use Bonjour or just your average network technology?

bonjour is also how you connect to a printer that is plugged into an airport or airport express over your network