Basically, you will simply tap your phone in shops to pay for everything you purchase using near-field communication (NFC) technology.
I am here to explain to you what it is.
Just like every other Google service, this one is also perfectly explained by Google's own official video, which I have embedded below to save you trouble.
And here's a video of the entire product launch event.
Google Wallet is pretty much a service like PayPal. It stores your credit card data and you pay using it. The twist here is in the method of payment. You will simply pay for physical services in the real world rather than online. And Wallet will work using your phone (or maybe other portable device).
This will happen using an NFC chip built into the device. Suppose that you are paying for your groceries at the supermarket. You simply whip out your phone and tap it on a sensor on your counter and your payment is done. It's that simple.
But this does not mean that you can start using Wallet right away. The service hasn't launched yet. There are several reasons for that. Not many phones are available that are NFC-enabled.
At the launch of Google Wallet, it will only be compatible with Google's Nexus S 4G, which is available on the Sprint network in the US. Also, at launch in the US, some businesses have already agreed to implement Google Wallet for payments. These include Subway, Guess, The Container Shop and more.