As said, it's basically a shortcut, but way better than a shortcut.
On Windows if you make a shortcut to a file and then move the original file, the shortcut doesn't work.
In Mac OS, if you move the original, the alias still works - so it's almost like a dynamic shortcut if you like.
One way to benefit from an alias (for example) is to keep your big movie files on an external hard drive, then make an alias and drop the alias into your movies folder (under your name in Finder) - you can now go into Front Row, and it will see those movies but you're not loosing space on your primary disk (and of course you only need one drive to hold your movies on, which you could then use on your Xbox, a couple of Macs and a PC (1 device at a time, unless you go down the NAS route, but that's a whole different question
))
Cheers,
Dave.