As far as I can tell, the Bugbase takes the place of your PC (or Mac). Right now, if you want to create a web-enabled camera, thermometer, robot controller or such, you go to the store and buy USB or Ethernet-controlled peripherals and control them through your PC. Your PC is the device's interface to the rest of the world. Ease of integration is obtained through the device using standard ports and loading its driver software. If you're clever, you can do novel things with these devices by hacking into them. For example, I found that I can turn my Olympus digital camera into a stop-motion image generator by hooking it to my PC and using some third party software.
Bug takes the place of the PC and gives you a small, easily programmed interface so you don't have to lug around a big machine and find hacks into the peripherals. That sounds like a lot of fun for the geek community. Some of them might come up with some great applications. There's one question I have about the Bug business model, though.
Why do we buy corkscrews, screwdriver sets, knives, saws and magnifying glasses and not just a single, monster Swiss Army Knife?
I suppose the counter to my question would be, "Why don't you bring your tool chest camping with you?"
Bug Labs also has a blog where you can follow their development process. There are some informative discussions in the comments of some of their posts.