It's just for show. I got into it after I finally went from lurker to poster and gained 10 karma overnight. Then I went from 10 to 20 from contributing to the community. However, then I went from 20 to 12 after I made a few posts about personal languages choices on a thread and someone got ticked and downvoted all six posts I made to the thread no matter how relevant they were. Since then I haven't tried to take it too seriously.
It's mostly for show. You can't buy anything with it, and you can't elect to use it for visibility (though reputation, which it's a proxy for, can achieve this effect). Others can see it on your user page if they click through from a comment you made. You gain karma when a comment or submission is voted up, and lose it when it's voted down. Voted down? When you cross a certain threshold (500?), you're trusted with the ability to down moderate comments that don't contribute: http://ycombinator.com/newsguidelines.html
You can downvote once you have enough karma (the karma you need for downvotes changes with time; not sure how much it is these days)
Also, it's a function of how long, how active and how agreeable with the groupthink the user is.
In the distant past, it was common for people to upvote comments they disagree with if they made a good point, but give a counter argument. In the last 6 months or so, it has become much more common to disagree by downvoting without giving a counter argument. I liked the old convention better.
It is to give some feedback on how other people react to your submissions and comments. When you click on the up triangle next to a comment the person who made the comment gets one karma point. The down triangle takes one away.
Up-voting can mean:
I hope more people see this story.
I agree with the comment.
I enjoyed the comment.
Thank you.
I think your comment helped this discussion.
Yes, lisp is wonderful - Or Apple products.
Down-voting can mean:
I disagree.
Please go somewhere else.
You aren't helping the discussion.
You suck.
You hurt my feelings.
I can't believe anyone could say something that stupid.
Microsoft sucks.
Basically, don't be a jerk and don't take the karma too seriously.
The way I've always thought about it is as the application of game mechanics to the problem of sustaining a community that links to quality content and produces quality discussion.
Karma - particularly on Hacker news - is not useless - it's a concrete measure of the value you have added to the community. It's not a perfect measure - but I think it's pretty good.
I'll very often follow through on looking up users with high Karma - finding out who they are if they declare it - subscribing to their blogs and things like that.
It's feedback from the community, to help you be more useful to the community. You get more karma when someone upvotes your comments and submissions; you get less karma when someone downvotes you. Downvotes tell you "this comment did not help the discussion."
