It's a web service. You get some web-hosting space to put up a webpage, an email address, and some general storage space (for syncing and/or accessing files away from your home).
You buy it from Apple. It's sold on a year per-year subscription.
I see that I can use my own domain name for websites but how about the email addresses for that domain? Is it possible to use them for .Mac? I mean if I use anghammarad@postoffice.dw (where postoffice.dw is my own domain) can I still use that or will I have to change it to addresses provided by .Mac?