CTI can be used to integrate the Service Cloud offering from Salesforce to enable call center agents to get screen pops and information related to a phone call. This is typically used in call centers where someone calls into a support line and the call is routed to an agent who is using Salesforce.com. The user receives a popup in Salesforce with the matching Contacts for that phone number and opens a case for that contact.
The technical details on Open CTI can be found here:
Cory has pretty much summed up everything there is to know about CTI. Simply put it's a tool that allows your organization to merge your phone system with your CRM. Whatever data is stored in each of the systems become available to the user through an accessible interface. CTIs mainly have a screen pop feature which lists all the details the user needs to provide a smooth customer experience. Here's a perfect example of what a CTI can do for Salesforce: https://appexchange.salesforce.com/appxListingDetail?listingId=a0N3000000CWH1xEAH
The technical details on Open CTI can be found here:
http://www.salesforce.com/us/developer/docs/api_cti/index.htm