It is the system where the TV artificially adds lines of detail to a TV picture (usually by a third) to increase sharpness and depth to the picture. A psuedo high-definition if you will.
There are various brand names for this such as Loewe's DMM, Sharp's Movement Compensation (now DMM too) and the most famous (and the original to my knowledge) - Philips' Pixel Plus.
Some people do not like the 3D effect of interpolation as they say it looks too real and like the programme/film was made on a camcorder. Me, I think it's the greatest thing since sliced bread.
For those who are not keen on it, Sony, Panasonic and JVC's variation is much more subtle.
Meanwhile, interpolation on digital cameras is where the camera double the number of lines actually photographed to try and increase detail. A camera might be 6 million pixels interpolated for example might only use a 3 million pixel CCD chipin the camera. Does it work? That's for the user to decide.