What is Mastercoin? Why does it exist? What is Mastercoin? What is its raison d'être? Have there been any real world examples of its use?
http://wiki.mastercoin.org/index.php/FAQ#What_is_Mastercoin_and_why_is_it_needed.3F

Mastercoin is both a new type of currency (MSC) and a platform. It is a new protocol layer running on top of bitcoin like HTTP runs on top of TCP/IP. Its purpose is to build upon the core Bitcoin protocol and add new advanced features, with a focus on a straight-forward and easy to understand implementation which allows for analysis and its rapid development.

The primary features of the Mastercoin layer are different ways for user to create their own custom currencies straight from the client. The new user currencies include a variety of different usecase, including Smart Property, Pegged currencies (e.g. pegged to the value of the stable US Dollar or Gold), and Decentralized Applications where tokens include not just a financial aspect, but also decision making power.
For more info, please see mastercoin.org.

See also this presentation (video + slides).