What is Tor?
What Tor Does
Tor is short for The Onion Router (thus the logo) and was initially a worldwide network of servers developed with the U.S. Navy that enabled people to browse the internet anonymously. Now, it's a non-profit organization whose main purpose is the research and development of online privacy tools.
The Tor network disguises your identity by moving your traffic across different Tor servers, and encrypting that traffic so it isn't traced back to you. Anyone who tries would see traffic coming from random nodes on the Tor network, rather than your computer.
To access this network, you just need to download the Tor browser. Everything you do in the browser goes through the Tor network and doesn't need any setup or configuration from you. That said, since your data goes through a lot of relays, it's slow, so you'll experience a much more sluggish internet than usual when you're using Tor.
What Tor Is Good For
If you want to be anonymous—say, if you live under a dictatorship, you're a journalist in an oppressive country, or a hacker looking to stay hidden from the government—Tor is one of the easiest ways to anonymize your traffic, and it's free.
On a more general level, Tor is useful for anyone who wants to keep their internet activities out of the hands of advertisers, ISPs, and web sites. That includes people getting around censorship restrictions in their country, police officers looking to hide their IP address, or anyone else who doesn't want their browsing habits linked to them.
Tor's technology isn't just about browsing anonymously. It can also host web sites through its hidden services that are only accessible by other Tor users. It's on one of these hidden service sites that something like The Silk Road exists to traffic drugs. Tor's hosting capabilities tend to pop up in police reports for things like child pornography and arms trading, too.
So is it something that everyday users need? Probably not, at least not yet. But it's become popular because of its usefulness in many of these more specific situations.