Real Life Uses
Telnet is a network protocol used to connect to other systems, over a virtual terminal interface. It works as a client-server protocol, connecting on port 23 by default. Telnet has been used since the early 70s and is still used today.
Uses in Telehack
In Telehack, you can use telnet to connect to another server. For example, at the "@" prompt, you can type telnet tandem to connect to the Tandem system. This connects to it, and sends you to the login screen of the system.