interrupts are a fundamental part of computer processors, they say that if something occurs stop everything, run this part of the code, and then return back to what you were doing
imagine that your working on a report in the office and the phone rings from the bosses extension, that's an interrupt.
AVR microcontrollers can accept many different interrupts from different locations, internal timers, or external influence. the bad thing is AVR micro's are pretty stupid and cant really tell what caused the interrupt, it just knows that something happened, so if you have 2 items using interrupts, it kindly runs them both.
For example the TV out library uses timer interrupts so it can make the video timing signals, add the PS/2 keyboard library which uses external interrupts to note when the keyboard has data to send and the screen gets all goofy.