TREZOR is a hardware wallet providing the highest level of security and convenience for a common computer user.
Unlike for example a cold storage (offline storage or paper wallet), TREZOR also signs transactions internally. Like this spending bitcoins is made securely without exposing your private keys to a compromised or vulnerable computer.
It is a small USB device with a display and two buttons.
It connects to a computer via a micro USB (like a mouse or a keyboard). The limited USB protocol only allows to send a transaction template to the device and protects the wallet against malware.
The display allows the user to visually verify the payment address and the amount to be sent. In order to proceed the transaction, a physical human interaction (pressing the button) is required.
TREZOR uses hierarchical deterministic wallet creation (BIP 0032) which makes regular backups unnecessary. When first initialized, a mnemonic code of 12,18 or 24 words, the recovery seed, is created. In case the device gets lost or stolen, the user can recover the entire holdings including transaction history into a new device or other compatible wallet.
TREZOR provides the user optional protection mechanisms: PIN protection and passphrase encryption.
A PIN is set by the user during the setup. It protects TREZOR against being used by unauthorized persons. The wallet creators have invented a secure way of entering the PIN that can’t be keylogged and misused.
Encryption passphrase can be set on top of the PIN. This protects the device in case of seizure. Multiple passphrases can be used for plausible deniability.
TREZOR FAQ: www.bitcointrezor.com/faq