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Augmented Reality (AR) refers to computer research that aims to produce information systems that merge real world information seamlessly with digital information. Augmented Reality is still in its infancy, but many futurists and researchers expect it to experience a renaissance sometime in the 2010s or 2020s.
The central goal of an Augmented Reality system would be something like goggles or a retinal projector that provides the user with a heads-up display of relevant information, mapped onto the surrounding environment in realtime. For instance, when viewing a restaurant with Augmented Reality goggles on, one might immediately call up a list of reviews, or a menu from the restaurant's website. A scientist working on pharmaceuticals could use the goggles to display 3D models of various molecules and use them to visualize a better drug. Kids might use networks of connected AR goggles to play real-life video games that let them fire "lasers" out of their hands. The possibilities are rather limitless.
Augmented Reality is dependent on progress in miniaturization and wearable computing. Currently, we lack both an effective projection system and fast computers small enough to really create marketable AR interfaces, though we're close. Prototypes have been cranked out for what seems like decades, but a viable mainstream product doesn't really exist yet. One promising technology is retinal projection -- a low-powered laser that projects images directly onto the retina, bypassing the need for goggles altogether. Commercial retinal projection systems do exist, but their resolution and color palette is very poor.
Augmented Reality does currently exist in rudimentary form. For instance, sports commentators can often use a light pen to "draw" on a football field and provide a visual aid to accompany their commentary. Another example is the first down line on football fields, drawn by computers in realtime and constantly updated. These aren't truly augmenting reality, however, because they only appear when you're staring at the TV screen. They do demonstrate proof of concept to some extent, however.
Augmented Reality has the potential to eliminate the stationary computer as the primary means of accessing information systems. Just as desktops are being discarded in favor of laptops and mobile phone browsers, the next step could be to trade these in for an Augmented Reality system. In a sophisticated AR scenario, you'd never need to leave the "real world" to access the Internet or do computer work -- the two would be deeply intermixed. For now, though, computer users are mostly stuck staring at LED screens and sitting on our bums, not getting much exercise. An unfortunate state of affairs, really.