RFID chips are very similar to barcodes in the sense that a certain amount of data is contained within them, and then transmitted to a reading device which then processes and utilizes the information. The major difference is that barcodes have to be physically visible to the reading device, which is usually only able to scan them at a distance of a 12 inches or less. RFID tags, on the other hand, do not have to be visible to the reading device. They can be scanned through clothes, wallets, and even cars. The distance from which they can be read is also much greater than that of a barcode. At DEFCON an RFID tag was scanned at a distance of 69 feet, and that was back in 2005, the possible reading distance now is probably much greater than that.
There are a few different categories of RFID tags, but the most common ones, and the ones we will be dealing with in this instructable, are the "passive" type. Passive RFID chips contain no internal power supply. They contain an antenna which is able to have a current induced in it when within range of the RFID reader. The tag then uses that electricity to power the internal chip, which bounces its data back out through the antenna, where it will be picked up by the reader.
For more information on RFID tags check out the wikipedia entry.