In digital music, playlists are simply sequenced lists of audio tracks that can be used by both software programs and portables (MP3 players, PMPs, etc). You can visualize them in a similar way to the track listings you often find on the back of vinyl or CD albums. People often use playlists as an organization tool for their music library by creating custom lists of songs that suit a particular musical style (genre), artist, or mood. However, this is where the similarity ends. You can do a lot more with playlists than just using them to queue up tracks to listen to -- although this is one of the most popular ways to use them.
Software Media Players
Software media players such as iTunes, Windows Media Player, and Winamp for instance take full advantage of the creation of playlists. As well as helping to organize your MP3 library, they can often be used for burning CDs and DVDs, syncing music, and even listening to Internet radio stations (streaming music).
Portable hardware devices with facilities for storing and playing back multimedia formats usually support the use of playlists. Many MP3 players, PMPs, smartphones, etc., can use playlists to help organize and play your songs in various ways.
The most common file extensions you're likely to see are .m3u and .wpl
For some of the best ways to use playlists, be sure to check out our iTunes guide on using playlists.