I pasted this from another answer I have previously read here
//-------------------------
Widgets in yahoo is like Microsoft's Vista Gadgets.These are little programs that primarily use web services.
For example there are widgets that tell you how is the weather forecast, others let you read headlines from your favourite news paper, others can display images from a site. All this is done by small applications that are on your desktop. There are also widgets that do very simple tasks: calendars, calculators, clocks, program launchers...
In a technical view, there are several kinds of programs:
1-native - the common exe's, like word, paint, explorer... They can be only executed in one kind of operating system (for example, windows). This kind of files contains machine and Operating System-specific instructions.
2-portable- java based and new .NET exe's. They are run by using an interpreter (java virtual machine or microsoft's net framework). They can run on any kind operating system or computer that has the interpreter. This kind of files contains something called "intermediate code", which is generic, as opposed to that of exe's, which is specific.
3- scripts: they are like portables, but they run inside your web browser. This kind of files contains text instructions for the browser, and is a mix of html and javascript.
4- Widgets/Gadgets: we can say they are a mix of 2 and 3: they need a kind of interpreter (in this case yahoo widgets engine), but they are scripts.
In my oppinion, MS has copied this idea and added it to the new windows vista.
If you want to see widgets in action visit widgets.yahoo.com. It's a gallery where you can find widgets for what you need.
Also, if you want to make your own widgets, you can find here tools and tutorials (you should know how to program!)
//--------
Hope this helps