I don't own one, but from my understanding, what you say is correct. It is both an external wireless hard drive that is fully time machine compatible with multiple computers, and it also functions as a wireless router a/b/g and n. You would need an ethernet cable to connect it to your cable modem.
I've been thinking long and hard about getting one, but many post have stated that it has a shelf life of 14 to 18 months, then just stops working. Many suspect that poor ventilation and overheating lead to it frying its internals. Even though Apple Care covers it for a replacement, Apple will not recover your lost data for you. If you try and open your TC to plug the hard drive into an external SATA enclosure, it voids your warranty.
If anyone else has a different viewpoint or understanding of the device, please add in and correct me.