Steam is like an online store for games. You said you were Australian in a previous post so imagine it like a EB Games or something.
Instead of walking in-store, you search for the game and pay for it via a credit card or PP. After the payment is confirmed you are given a receipt as PoP and you can then download the game.
The advantage of STEAM is that you can buy multiple games and link them to it. For example i bought BLOPS retail, but since Activision and Valve had a agreement to sell BLOPS on STEAM as well, I could link my retail key to my steam account. Even if I lost my cd-key + cd's for STEAM I could always go to my "Library" in STEAM and re-download the program.
In Australia, our infrastructure is pretty bad so It would have been a better idea to purchase a retail copy.