Basically, it is Google Now notifications designed for really small screens, plus some quick answers via voice command. The screen is touchable and swipe-able and looks pretty nice, although, Google is not making the hardware, they are making the software only.
Here are some video demos:
Google is working with several hardware companies to make this happen, including Asus, HTC, LG, Motorola and Samsung; chip makers Broadcom, Imagination, Intel, Mediatek and Qualcomm. LG and Motorola I believe promise something by the summer. Here is a video from Motorola:
For developers, check out Android Wear - I for one can't wait to get my hands dirty with this.
Forum discussion at Google+.