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A more simple description, it allows you to modify the contents of a file without you actually having to open it.
References
Simple introduction - http://www.grymoire.com/Unix/Sed.html
Another introduction - http://lowfatlinux.com/linux-sed.html
Using sed to edit and save to the same file - http://unstableme.blogspot.ca/2010/01/sed-save-changes-to-same-file.html