OpenID is an open decentralized system for single sign-on that allows users to log into multiple websites using a single digital identity. It works by allowing users to log into third-party websites using their existing account with an OpenID provider like MyOpenID or Google. When a user attempts to log into a new website, the website will contact the OpenID provider to verify the user's identity, avoiding the need for separate usernames and passwords on each individual site. OpenID is gaining popularity with thousands of websites now supporting it, including AOL, Google, and Yahoo, as it provides a more convenient login experience for users while also reducing the risks of identity theft for companies.