This is a server which contains a central repository of sql servers which can be grouped in various ways. These could be grouped into customers, versions (2008, 2005) or state (Development, Staging, Production).
This group can be used to connect to SQL Server configuration manager, to run queries, object explorer or to evaluate policies for policy based management.
To create a central management server this can done through Registered Servers on the view menu. For more details
The Central Management Server only works in one windows domain, so if there are multiple domains that require to be managed there will need to be multiple Central Management Servers.