Bluetooth allows you to connect many different types of devices to your computer. It's commonly used for connecting wireless mouses, keyboards or speakers. You can also use it to send files between devices, such as from your computer to your cell phone, or vice versa. It is different than a Wi-Fi connection because it does not let you access the internet.
You can turn Bluetooth on to connect to other Bluetooth devices, or you can turn it off to conserve power.