RFID stands for Radio Frequency Identification, and it does exactly that: provides identifying information on a tag that may both receive and transmit information at radio frequencies. This information can be anything, from your heartbeat to the name of your dog to the owner of a cow, and is useful for a huge variety of purposes. The strength of the signal from the tag to the receiver may also be used as a locator, especially when used with multiple lo caters to triangulate the position.
There are three types of RFID tags: active tags, which contain a battery and are constantly transmitting some sort of data such as vital signs, passive tags, which require external source such as a scanner to create a signal in an otherwise batteryless device, and then battery assisted passive, which function as something of a hybrid of the two in that an external source is required to activate the battery functions. Each of these have their nuances of use.
As you might imagine, this technology is best suited for smaller spaces, where the infrastructure is already in place to use it. RFID requires specialized scanners to read and transmit data, and without one specific to the proprietary receivers, there's no point. The dedicated infrastructure may be of great cost on a large scale, but on a small, localized scale, may be incredibly powerful for both tracking and for providing information.
That being said, they work brilliantly for hundreds of purposes in your every day lives, from automatically scanning highway toll fees to using Zipcars to use of public transportation to preventing shoplifting to IDing livestock to even identifying humans by passport—or implant. RFIDs serve for an incredible variety of purposes, and the number is just likely to grow.