A workspace is a "virtual desktop." Each workspace displays its own set of windows, and each can have a different background color (or image) and a different screen size. You can have as many as 32 workspaces; by default there are nine.
To switch to a different workspaces, type Alt+Function Key N, where N is the number of the workspace you want to go to. For example, to switch between the first three workspaces, you would type Alt+F1, Alt+F2, and Alt+F3.
The function key method of switching between workspaces only works for the first nine workspaces--in other words, only Alt+F1 through Alt+F9 are interpreted as workspace-switching commands. If you have a lot of workspaces, you have to use the Workspaces preference application to switch between the higher numbered workspaces.
Workspaces are great for organizing your work. You could, for example, have one workspace devoted to e-mail, use another for browsing the Web, while setting a third to "high definition" for viewing images.
For more information on workspaces, see Workspaces preference application. You should also look at Screen and Backgrounds; these preferences let you set the screen sizes and background colors (or images) for each workspace. You should, at least, set your workspaces to have different background colors, in order to be able to easily distinguish between them.