The center of most living rooms is the entertainment system. In a normal home these typically include a television, stereo, cd player, dvd player, vcr, cable box, tivo, etc. With all of these devices come complexity. Each one has their own remote control, power cord, and video and audio outputs. It only seems logical to combine them all into a single device: the Apple TV.
Now that computers have hit the mainstream, we've begun consolidating our media onto our workstations and laptops. Originally people mainly stored music on their computers, mostly in MP3 formats. As digital photography became more popular people starting storing their pictures there as well. Lately we've seen more movies stored in digital formats on people's computers. With the increasing size of harddrives it has become trivial to compress a DVD to store on one's machine to watch later.
With all of this media stored in one place, it makes perfect sense to create a gateway for this to be shared with the rest of the owner's house. With the Apple TV someone can browse their photo selection, pick a track to listen to, or watch a movie at will, as long as its stored somewhere on their computer. The Apple TV makes home theater more about entertainment and less about juggling media, remotes, and hardware. It is a great addition to anyone's living room.