Keychain is Mac OS X's built in password management system.
You can create multiple Keychains, but by default there are a login and a system keychain (as well as a keychain for microsoft exchange, I think).
With the Keychain application you can create complex passwords for services that are then remembered in one of your keychains. Then you only have to remember the passwords for your keychains instead of all the passwords that are stored in your keychains. Having more complex passwords that are too difficult for you to remember keeps those services more secure as long as the passwords for your keychains are secure; they must be complex but easy enough for you to remember without writing them down.
BUT, you have to remember to keep your keychains locked when you are away from your computer because if you don't then someone can sit down at your computer and freely access those services protected by your keychains. (EDIT: Login keychain can become annoying unless left in its default state to remain unlocked.)