To understand the Droid, you need to know both the hardware and the software. Software first. Oh, and I'm an Engineer, so you're going to get way too much information. Just figured I'd warn you. It's also fairly natural to mention the Apple iPhone here, since that's the other smart phone designed for consumers.. as well as a market leader in the USA.
The Android OS was debuted in demos in late 2007. Android was a company started by some guys from companies purchased by Microsoft, including WebTV and Danger, Inc. (best startup name EVER), some phone industry execs, and other people. The goal was building a new smart phone OS. Android is based on GNU/Linux and a Java(ish) middleware layer. Most applications live in Java (same language, different virtual machine). Android stresses security -- each app lives in its own copy of the VM, with independent Linux user IDs, set at install time to gate that app's access to shared resources.
Meanwhile, Google was stressing about the rise of smart devices. Google is based on web search... that's the basis of their whole environment. Given networked smart devices like phones, people will be doing more search on the device, less on the desktop. But given RIM, Apple, Palm, Microsoft, and even Nokia (though they're based on open source OSs), it would be very possible for Google to be locked out of handheld search. So they bought Android, Inc. Then they open sourced the whole schmeggie.
This was fairly profound. Phone makers were sometimes licensing outside OS, sometimes building them in-house, but it was lots of work, and licenses had to be paid. All of a sudden, you had a fully functional open source phone OS backed by Google. And not just that, but one that, unlike many others, could be competitive with Apple's iPhone juggernaut.
Now enter the Motorola Droid... the first Android to meet and exceed Apple's iPhone 3GS spec. It has an 854x480 screen. It's a mm or so thicker than an iPhone, but has a keyboard. It runs a 550MHz ARM Cortex A8 CPU, versus the 600MHz ARM Cortex A8 CPU in the 3GS. But it's a TI OMAP 3430, so it's got enhanced video acceleration and a 550MHz DSP, as well as PowerVR 3D GPU, similar to the PowerVR core Apple & Samsung licensed for the iPhone. It's got a replaceable battery, and ships with a 16GB SDHC memory card, replaceable.
And of course, in the USA, it's on Verizon's network, not AT&T's. AT&T does have faster cells... up to 7.2MB/s down, and 2Mb/s up. The iPhone, however, doesn't do full HSPA uploads, so it's limited to 384kb/s on uploads, anyway. Just about every Verizon cell is 3G... that's the advantage of EvDO.. it did not require new spectrum, but it's limited to 3.2Mb/s up. On the other hand, AT&T only has 1/5th of the country covered in 3G of any kind, and by this summer, only 30-something cities with the 7.2Mb/s HSPA+. All other 3G cells are plain old HSPA, which is 3.6Mb/s up.
In use, Android on the Droid is great. You have full multitasking, within the limits of memory... no need to "swap" applications. Any app can run a background program (daemon), not just Google apps. Only Apple can do background programs on the iPhone. So the iPod media player can play music while you're web browsing, messaging, or playing a game. Any player can do this on an Android device, so I can have Pandora or Museek playing while I do those things.. very nice. There also apps that log your travels vis the GPS, change things based on locales (that racy background photo of your girlfriend changes to something corporate when you're at work or you Mom's house).
There are also things called "widgets", which are live desktop apps. So, want a clock on your home screen.. drop in a clock widget. Want live info from a weather feed.. same thing. On Android, the full list of apps are on a drop-up menu, not the iPhone's pages. You have desktop pages, but you can use these to dock widgets or frequently used apps.
Like the 3GS but unlike the other iPhones, there's a focusing camera on the Droid (and far as I know, all Android phones). The Droid's is 5Mpixel, which isn't as good as a real digital camera, but it's getting there. But this is a very useful tool. A standard app is a barcode scanner... scan a product barcode in a store, and you get price info nearby, and online. It also does those 2D barcodes that lead to web pages.. a standard way to find an Android app.
There's an Android Marketplace, similar to the iTunes store on the iPhone. You can download apps directly, many free (it took awhile to add for-sale apps on the Marketplace, and in some countries, they're not up yet). But there's no requirement that you buy apps there... you can install an Android application from any source. So, for example, businesses that want to write their own applications, or companies that sell directly to businesses, can do these things with an Android phone. They can't with an iPhone.
Google does have some standards for the Marketplace, but they're mostly about you, not advancing Google... unlike Apple. For example, there are many optional web browsers, and there will be a version of Firefox soon... banned already from the iTunes store. I have a Commodore 64 emulator on my Droid... another app banned in the iTunes store. Sure, there are lots of crazy and useless bits there, but that's also true of Apple.