According to Wikipedia:
Google Wave is a self-described “personal communication and collaboration tool” announced by Google at the Google I/O conference on May 27, 2009. It is a web-based service, computing platform, and communications protocol designed to merge e-mail, instant messaging, wikis, and social networking. It has a strong collaborative and real-time focus supported by extensions that can provide, for example, spelling/grammar checking, automated translation among 40 languages, and numerous other extensions. Initially released only to developers, a “preview release” of Google Wave was extended to 100,000 users in September 2009, each allowed to invite twenty to thirty additional users. On the 29th of November 2009, Google accepted most requests submitted soon after the extended release of the technical preview in September 2009, these users have around 25 invitations to give.
Google Wave was a new Internet communications platform. It was written in Java using OpenJDK and its web interface used the Google Web Toolkit. Google Wave works like previous messaging systems such as email and Usenet, but instead of sending a message along with its entire thread of previous messages, or requiring all responses to be stored in each user’s inbox for context, message documents (referred to as waves) that contain complete threads of multimedia messages (blips) are perpetually stored on a central server. Waves are shared with collaborators who can be added or removed from the wave at any point during a wave’s existence.
Waves, described by Google as “equal parts conversation and document”, are hosted XML documents that allow seamless and low latency concurrent modifications. Any participant of a wave can reply anywhere within the message, edit any part of the wave, and add participants at any point in the process. Each edit/reply is a blip and users can reply to individual blips within waves. Recipients are notified of changes/replies in all waves in which they are active and, upon opening a wave, may review those changes in chronological order. In addition, waves are live. All replies/edits are visible in real-time, letter-by-letter, as they are typed by the other collaborators. Multiple participants may edit a single wave simultaneously in Google Wave. Thus, waves can function not only as e-mails and threaded conversations but also as an instant messaging service when many participants are online at the same time. A wave may repeatedly shift roles between e-mail and instant messaging depending on the number of users editing it concurrently. The ability to show messages as they are typed can be disabled, similar to conventional instant messaging.
The ability to modify a wave at any location lets users create collaborative documents, edited in a manner akin to wikis. Waves can easily link to other waves. In many respects, it is a more advanced forum. It can be read and known to exist by only one person, or by two or more and can also be public, available for reading and writing to everyone on the Wave.
The history of each wave is stored within it. Collaborators may use a playback feature to observe the order in which it was edited, blips that were added, and who was responsible for what in the wave. The history may also be searched by a user to view and/or modify specific changes, such as specific kinds of changes or messages from a single user.
Update: As of August 2010, Google Wave’s development was discontinued. The tool was shut down in April 2012.