Let me see if I can summarize quickly and simply :)
Squidoo is a platform for publishing on-line, individual webpages - which in Squidoo-language are called "lenses". Anyone who publishes a page on Squidoo is a "lensmaster" - just like "webmaster" elsewhere.
Squidoo lenses can be about virtually any topic you want (although some topics are prohibited for legal reasons, and due to past spam abuse.) You can make a fan page for one of your favorite musicians, blog about personal experiences, share a favorite recipe or even publish a travelog. There is a large assortment of modules you can add to a lens: simple text modules (write anything you want!), photo gallery modules (share your pics!), quizzes and polls, formatted recipes, rss feeds, Twitter streams, Google news search results, link lists, voting lists, you name it! With the variety of modules available, you can really come up with a unique-looking and varied spotlight on a particular subject - part of why Squidoo pages are called lenses.
A successful lens in many ways combines not just your own original content but serves as a gateway for the reader to then go out and explore the topic from your lens. Indeed, my top-performing lens at the moment, about MasterChef US, combines both my own episode recaps and polls with lengthy link lists of where you can find all of the contestants on-line (their blogs, Facebook pages, Twitter streams, etc), YouTube preview videos, and yes a few products and cookbooks by the Master Chef judges themselves.
Because that's the other type of module you can add to your lenses: sales modules. Ebay, Amazon, CafePress, Zazzle, Etsy...these all have preformatted modules you can add to your lenses to promote related products (even your own, if you have say an Etsy shop!) If something sells from most of these modules, you earn a commission (split with Squidoo) on the sale. There are other ways you can earn sales commissions as well on Squidoo, by joining affiliate marketing programs like those offered by AllPosters.com or Commission Junction. Doing so is perfectly fine with the Squidoo TOS, as long as the affiliate program is on the up and up and not selling products against Squidoo's TOS.
But it's not just via sales that you can earn money with a Squidoo lens. Every lens earns a "Tier rank" on the site, and at the end of the month you can earn a payout based on Squidoo's overall ad pool revenue for the month (any clicks on Google and Infolinks ads on Squidoo lenses go into the general ad pool, not directly to the person who created the specific lens.) Lenses in Tier 1, the top 2,000 or so lenses on the site, earn the highest payout - these days around $50. Lenses in Tier 2, which have ranks between 2,000 to 10,000 approximately, earn around $10. Lenses between 10,000 and about 80,000 are in Tier 3 and still will earn perhaps $0.50.
If you rank worse than 80,000, you won't earn a tier payout - put you still get any sales commissions you might have earned. So it's different from other content sites which pay directly by the "hit", or by ads clicked on your pages alone. When Squidoo overall does well, the top lensmasters do well.
This system naturally makes Squidoo a bit of a competitive environment - everyone is out for one of those coveted Tier 1 positions, and at first it can seem impossible to achieve (at least if you want to play by the rules and avoid BlackHat techniques, which can get your account closed if caught immediately.) But there are many great lensmasters at Squidoo who work to encourage new lensmasters to do well, and to encourage good lenses to improve in their rankings by "Liking" lenses or even "Blessing" them (SquidAngels are lensmasters given "extra powerz" to Bless lenses they consider exceptionally good.) Yes, there are people who don't understand copyright and intellectual property, and Squidoo HQ hasn't always been the best at following up on content abuse unless directly served with DMCA notices. But they're getting better about it, particularly as Google continues to try to push down "junk" and promote Unique, Updated and Useful information (which are in fact the "three U's" of Squidoo lensmaking :) ).
You aren't going to make thousands of dollars overnight joining Squidoo. In fact, you have to have a lot of patience because payouts are 2 months delayed, and it can take quite a few months to learn the tricks of good keyword research, promotion, and lens structure to start building your rank. I can say that after about 18 months on Squidoo, I'm earning a steady 3-digit amount from them monthly - enough to pay at least a few household bills regularly, which is nice. My to-date best performing lens on Squidoo has earned over $400 alone since I published it last year. Squidoo is also a great tool for promoting my other businesses and activities, like my artwork and jewelry. I would recommend that some of my friends who are fiction authors might want to investigate setting up a Squidoo account, as you can easily create pages to promote your writing blogs, published books, or just continue to create a web presence for yourself in a different environment.
Some would say "Why not just monetize a blog, why use a platform like Squidoo?" Because getting high enough traffic to a personal blog, unless you devote an EXTREME amount of time to it, can be difficult. And generally a blog needs to have a tight focus to do well from ad revenue, so if one wanted to write, say, about 10 different topics (art, music, food, travel, etc etc) you'd need 10 different blogs to maintain. That gets to be a lot of work. In over a year of having a personal food blog, I haven't even earned enough to get a threshold payment from Google Ads. Compare that to how the money comes in from Squidoo, and...yeah. There's good reason I like the platform.
Does Squidoo sound like something you might want to try for yourself? If so, just click thru to Squidoo here and see how easy it is to set up an account. And be sure to let me know your lensmaster name once you get started!