HardOCP tested some ATI graphics cards in Unigine Heaven, a new DX11 Tessellation benchmark. You can check it out over here.
Tessellation is the technique of changing the amount of polygons in an object being rendered by your GPU dynamically. Your GPU is creating polygons on the fly. As you see above, it is capable of creating very complex geometries that can greatly add to the immersiveness of a gaming environment. It is quite simple as to why we would want to use it in games. As objects get closer to the camera, the game developer has the ability of increasing the amount of polygons used in an object so it appears more lifelike. Or, you can look at it from a traditional Level of Detail (LOD) standpoint where as an object moves away from the camera, the polygons are lessened so there is less strain on your GPU rendering polygons that are not needed.
Here's an example of a road with and without tessellation. The result is pretty stunning, although it doesn't really look like a very comfortable read with all those bumpy stones.