It's health insurance where instead of paying a premium (or having a reduced salary in the case of socialized medicine that you pay for via taxes) you get to keep the money tax-free and put it into a savings account to pay for your own medical expenses. But it's your money and you get to save it or use it as you wish.
Yeah, and Dullard gave some good explanations. The thing is, HSA works best as a way for offsetting your healthcare costs when you retire. It basically works like a retirement plan. My company will put money in each year, the money you put in is tax-exempt (which is taken off of your highest bracket), the money can be invested, and when you spend the money it does not contribute to your taxable income. So the best way to take advantage of this is to use the HSA to save for when you retire so that you make use of the tax advantage investments. Which is a hard way to think about the program.
Problem is that these are only eligible for high deductible plans. So you if you are consuming healthcare at the moment, it becomes very costly since you may have to spend several thousands of dollars before benefits kick in. Personally, HSA is a losing game for me because I am always hitting my maximum out of pocket expenses. So I have found that using a low deductible plan and a FSA (which lacks the investment program and does not roll over each year) is better for me.
So the way I have it right now, is that I max out my 401(k), IRA, and FSA. That pretty much keeps my cash reserves at a stable level throughout the year. So I don't have left over money for me to have invested in the HSA and pay my current medical bills. Maybe when I get married I'll have my spouse get a high deductible insurance plan and build up an HSA.