Mylar is an eclipse technology project. It makes it easy to focus on a task you are working on, by hiding the information that's not relevant to the current task.
How does it know, which information is relevant? It "looks over your shoulder" and remembers the files, classes and methods you have looked at. With some magic it puts some weight on the places you have been. For example if you get back to some place or even edit there, it gets more weight than just looking once at the file. But you can also tell mylar explicitly that you are interested or not interested in some context.
How does it hide irrelevant information? Well, in the package explorer, outline etc you see only the classes and methods in your context. There's even a mode that shows the relevance by the background color. And really important places are shown in bold. To build up context, you can disable mylar on the view to see everything. I never use the editor folding features of mylar, because I don't like folding.
If you want to learn more, I highly recommend the getting started flash demon.
There are also integrations with bug tracking systems, and it seems that this is how most people are using Mylar. Unfortunately, we use a commercial bug-tracking system that is not supported by mylar. But I find mylar very useful, even without the bug tracking system integration.
However, sometimes I hate mylar: I am working on a problem, and I find something interesting I want to look at later. So, I create a new mylar task. That's all fine. But now, when I want to add context to this task, I have to start from scratch, because mylar closes all my editors and collapses all my trees. However, if I have switched off mylar (that is: I have no active mylar task), and then create a new task and activate that new task, everything is good. In this case mylar does not close all my editors, but is clever it letting me build up my context from where I am. (I created a little flash demo to illustrate this workflow). I talked about this on the newsgroup, and it seems that my workflow is very special. I wonder if I am the only one having this workflow problem with mylar, therefore I created a bugzilla entry: bug 157933....