It should be called HDCC, for content control, not protection. Because it's all about control
It's part of the copyright cartel's goal to be able to tell you what you can do with video and when. They know the pirates will break whatever encryption they use, so it's basically to keep Joe Schmoe in line.
zeugma told part of it. Basically, it makes a secure path from content to pixels on the screen. If any part is not considered secure (the video card in this case), it will either not display or display with degraded quality, depending on the wishes of the corporation.
If you have all HDCP-certified hardware, you will only be able to do with that video what the copyright cartel has allowed. IOW, kiss Fair Use goodbye. It's been a thorn in the side of the copyright cartel since the VCR, and now they think they've finally found a way to get rid of it.
And we won't have Mr. Rogers to testify for us this time around.
Sony lost a court case that went all the way to the Supreme Court many years ago concerning your right to have the ability to tape things. I believe the case in question was the recording of Television content to videotape, though the ruling has since been applied to casettes and other similar media. Now, they want to implement the restrictions they could not win in court by technology that you will not be allowed to circumvent even if you previously had the rights to do so. For instance, if you buy a CD, they don't want you to be able to cut a disk for use in your car. They also don't want you to be able to use it in your mp3 player, or anything else. They've already purchased enough congresscritters to make copyright perpetual and now they want the ability to dictate how you can use items you purchase into perpetuity. Nice huh?