What is tethering?
In situations where you don't have access to Wifi, using your smartphone that has internet access, as a modem for your laptop to access the internet.
Personally, I just use this feature as an emergency replacement when my broadband access goes down at home, or when I am traveling and want to access the internet with a larger screen than my G1 has, and there is no Wifi signal available.
Because a few abuse tethering, some carriers prohibit tethering and use technical means in the phones to block the ability. AT&T and the iphone in the US is one. T-Mobile and the G1 do not "officially" sanction tethering, but free applications to tether the G1 are widely available, and as long as you don't exceed 10 gig of data a month with your G1, they don't bother you, and even then, they only slow down your access. 10 gig per month is a huge amount of data, BTW.