A groupoid is a generalization of a group. The easiest definition, IMO, is as a category in which all arrows are isomorphisms. So a group is just a groupoid with one object and arrows the elements of the group.
The best example is the fundamental groupoid of a topological space. Build a groupoid by taking the objects to be the points in the space and an arrow from point x to point y to be equivalence classes of paths from x to y. This genearlizes the idea of the fundamental group.
They are useful and Ronald Brown has a whole project of building higher dimensional group theory using them. The great thing about the fundamental groupoid is that there is a version of Van Kampen that gives the fundamental group of the circle (without using covering space theory as is the standard way to do it using only the fundamental group).
A good link is http://www.bangor.ac.uk/~mas010/nonab-a-t.html
ETA: That link might not be working. Google Ronald Brown's Topology and Groupoids book for a good introduction and motivation.
