Dashboards provide a quick, graphical view of statistical information from a number of different reports. It allows you to quickly see relevant and related information 'at a glance' -- which can be much more convenient that running and reviewing multiple reports.
The place you're most likely to have seen a dashboard is on your home page. The home page allows you to pick one of your dashboards and display the top three items on it on the homepage so you always have an 'at a glance' view of the statistics that are most important to you.
You can create as many dashboards as you like - so that you can organize certain types of information in one dashboard. For example, you could have a dashboard that contains all the information on your service hours, # of connections, types of volunteer opportunities etc, as a "Volunteer Opportunity Overview" dashboard. You might have another dashboard focused solely on organizations (sponsors vs non--profits, etc) and another just on your volunteers (demographic information, level of activity, % of Volunteer Leaders, etc)
The homepage view of part of a dashboard
A full dashboard (as seen in the Dashboards tab) can contain as many different 'components' as you like.
A dashboard is made up of a number of 'components' (individual visual summaries of an existing report.
Components can be of a number of different types including charts, graphs, gauges, tables, metrics or even custom VisualForce pages.
Dashboards are grouped by folders, which can have variable visibility settings depending on who can view them.
In order to view a component -- a user must have access to the folder which contains the report the dashboard is based upon.