It's changing the way in which we view the world.
The simplest description of Augmented Reality is that it takes real-world views and mixes them with computer generated content but no description can really cover the jaw-dropping effect it has on people seeing it for the first time (If it works correctly that is).
There are a large number of demos displaying the nice shiny effects of this technology as well as increasing numbers of applications being built for mobile devices. The real test will undoubtedly be whether it can deliver real benefits over more traditional interfaces in the long run.
First AR app on the iPhone (Paris metro subway):
HTC Magic / Vodafone AR game:
Android driving/navigation app: