The output clause is a really nifty thing in SQL Server 2008, which provides you access to the same "inserted" and "deleted" tables you get access to via triggers, but from within the same query.
To illustrate, suppose we have a table:

CREATE TABLE [dbo].[OutputEx]( 
   [Key] [int] IDENTITY(1,1) NOT NULL, 
   [Value] [nchar](10) NULL, 
   [SecondValue] [datetime2](7) NULL, 
 CONSTRAINT [PK_OutputEx] PRIMARY KEY CLUSTERED  
( 
   [Key] ASC 
)WITH (PAD_INDEX  = OFF, STATISTICS_NORECOMPUTE  = OFF, IGNORE_DUP_KEY = OFF, 
ALLOW_ROW_LOCKS  = ON,
ALLOW_PAGE_LOCKS  = ON) ON [PRIMARY] 
) ON [PRIMARY] 

GO 

ALTER TABLE [dbo].[OutputEx] ADD  CONSTRAINT [DF_OutputEx_SecondValue]  DEFAULT (GETDATE()) FOR [SecondValue] 

This is a table which has an identity column in [Key] and a datetime value field in SecondValue2 which defaults to the current date (GETDATE())

Now, if I insert a [Value] into this table SQL Server will automatically insert the identity value and the current date SecondValue, but if I wanted to get these automated values out, I would have had to select them out manually afterwards.
This might not seem like much of a problem given these two values (Identity and date) however it might be much more complex constraints and default values.

So what I can do is use the OUTPUT clause like this:

INSERT INTO OutputEx ( Value)
OUTPUT inserted.[key], inserted.secondvalue         
VALUES  ( 'a')  
 
This will provide me with a result of the identity value inserted into [key] and the date value inserted into SecondValue.
I can use this result in an outer query by nesting the insert in a sub-query, or I can insert it into another table directly like this:

DECLARE @T TABLE(ID INT, [Date] DATETIME2)

INSERT INTO OutputEx ( Value)
OUTPUT inserted.[key], inserted.secondvalue  INTO @T
VALUES  ( 'a')
 

 
My table variable @T will now hold the values inserted
This also works with the "deleted" table instead of the inserted and thus both in insert/update and deleted queries.
It is a useful technique.