I've always fallen back on "Public Instant Messaging"...if they've never used it, getting too deep into the social media theory will cause their eyes to gloss over.

I usually start off by explaining that the main value (for me personally) of Twitter is that it can be setup to be a sort of living RSS feed aggregator that helps me identifying really great content and ideas (shared via links to content or just great 140 character tweets).

I explain that first and then go onto to explain it's value in terms connecting with peers & influencers and distributing/promoting content.

Then, lastly, I get into specific technical details and definition (what's a retweet, what's an @ reply, etc)

I relate it to growing and sending a message in the same manner as an opt-in email list.  Only without all the design, coding, formatting and other technical stuff that scares some clients.

I personally don't like comparing it to email because email is typically used as a one-way "broadcast" channel that allows for virtually no two-way interaction.

I feel that way too many marketers are using Twitter in this emailesque way, to their detriment.

It is like passing notes to each other in class.

I think newbies enjoy understanding the concept of "microblogging"... the idea that you are trying to make a post in less than 140 characters, and that is the core idea behind Twitter.  I then explain how following works, and distinguish Twitter from "approved friend" sites like Facebook.  The third point is the reality that most people don't write much in Tweets, and basically use it as a forum to share links and interesting stuff they find on the web.

I typically describe it as either a "virtual water cooler" or "virtual cocktail party" where you can have lots of brief, topical conversations, or simply listen in on them :)

I liken it to a chat room, with you only having to see the conversations of the people you want to see.

People seem to understand the concept of Facebook. So I try to explain that twitter is writing "facebook updates" that are visable to anyone.  I explain the benefits are in reputation management, customer service, and simply being able to own more "online realistate".