A "buffer" is a GIS term referring to a boundary formed around a feature. In this case the buffers are created by highlighting every place that is within a certain distance of each feature. One application might be to indicate everywhere on the map that can be reached by 100 feet of fire hose from every fire hydrant. Another application might be to illustrate everywhere on the map that is within 1 mile of the city limits. Yet another application might be to show a 1,000 foot radius around each well.
To use this tool you just indicate the layer containing the features around which you wish to form buffers. And then indicate the buffer distance (ie. radius). The result will be the creation of a new layer indicating the buffer around each feature. Your source layer will not be modified.