You only need to activate your system if you are using the PSN. It lets you play games or movies you brought from the PSN store. There is game activate and video activate. You can only activate 2 ps3 system per account for gaming, and only 1 ps3 system for video. The purpose, i believe is to stop gaming sharing.
It allows you to use content downloaded from the PSN, to the PS3 that your PSN account resides on.