What erythritol is:
Erythritol is the sugar alcohol (polyol) that has the least impact on blood sugar. Erythritol has almost zero calories, carbs, and glycemic index. The reason is a bit different that most sugar alcohols, which are only partially absorbed in the small intestine. Most (60-90%) of the erythritol is absorbed into the blood, but is then excreted in the urine. Because of this, erythritol tends to produce much less intestinal distress than other sugar alcohols.
Where erythritol comes from:
Erythritol occurs naturally in small amounts in some fruits, and in greater amounts in certain mushrooms and other fungi, and in fermented foods such as wine and soy sauce. The form used in foods is generally made by the fermentation of plant sugars.
What erythritol is good for:
Erythritol has 60-80% of the sweetness of sugar. Especially when used plain, it tends to have a cooling effect in the mouth. It can be used in baking, where it also has some of the tenderizing effects of sugar (results won't be exactly like sugar, though). It can at least partially replace sugar or artificial sweeteners for most uses. I find it especially useful in combination with chocolate (candy, brownies, etc.) where using purely artificial sweeteners produces unsatisfactory results.
Where to I find erythritol, and what to look for:
Erythritol is not widely available in stores at this time, so most must order it (see below). It comes in both granulated and powdered forms. The powder is preferable for most uses, because the granulated form seems to stay grainy unless dissolved in water. If you end up with some granulated erythritol, just run it through the blender for awhile to pulverize it (the food processor doesn't work for this).
The best price I've found for the powdered erythritol is at Netrition.