SteamOS will be available free of charge, it's based on a stripped version of Debian and comes with built-in support for proprietary multimedia codecs, graphics card drivers, audio drivers, drivers for popular gaming peripherals, etc.
One of the interesting aspects of SteamOS is that it's not limited to Linux gaming, Valve touts you'll be able to play all your Windows and Mac games as well by streaming those games over your home network straight to your TV. Valve also added that we'll see AAA title games for SteamOS next year (perhaps the long-awaited Half Life 3?).
There's no word about the launch date of SteamOS though, nor did the company reveal details about the anticipated Steambox systems.