If you are not interested in Unix or Linux, then this post is not for you. Here's a puppy for you.
This is by far the best explanation of what a TTY is and what it does that I have come across.
The TTY demystified
The TTY subsystem is central to the design of Linux, and UNIX in general. Unfortunately, its importance is often overlooked, and it is difficult to find good introductory articles about it. I believe that a basic understanding of TTYs in Linux is essential for the developer and the advanced user.
Beware, though: What you are about to see is not particularly elegant. In fact, the TTY subsystem — while quite functional from a user's point of view — is a twisty little mess of special cases. To understand how this came to be, we have to go back in time.
In 1869, the stock ticker was invented. It was an electro-mechanical machine consisting of a typewriter, a long pair of wires and a ticker tape printer, and its purpose was to distribute stock prices over long distances in realtime. This concept gradually evolved into the faster, ASCII-based teletype. Teletypes were once connected across the world in a large network, called Telex, which was used for transferring commercial telegrams, but the teletypes weren't connected to any computers yet.
Meanwhile, however, the computers — still quite large and primitive, but able to multitask — were becoming powerful enough to be able to interact with users in realtime. When the command line eventually replaced the old batch processing model, teletypes were used as input and output devices, because they were readily available on the market.
There was a plethora of teletype models around, all slightly different, so some kind of software compatibility layer was called for. In the UNIX world, the approach was to let the operating system kernel handle all the low-level details, such as word length, baud rate, flow control, parity, control codes for rudimentary line editing and so on. Fancy cursor movements, colour output and other advanced features made possible in the late 1970s by solid state video terminals such as the VT-100, were left to the applications.
In present time, we find ourselves in a world where physical teletypes and video terminals are practically extinct. Unless you visit a museum or a hardware enthusiast, all the TTYs you're likely to see will be emulated video terminals — software simulations of the real thing. But as we shall see, the legacy from the old cast-iron beasts is still lurking beneath the surface.