Home Sharing is a feature that became available in iTunes version 9. Home Sharing makes it easy to connect to the other iTunes libraries in your home network so you can stream and share--actually copy--music, movies, TV shows, apps, and ringtones.
Older versions of iTunes allowed you to turn on "sharing" so you could play other's music, but you couldn't add their media to your iTunes library. The benefit of adding to your own library is that you can sync it to your iPhone or iPad.
The second generation Apple TV uses Home Sharing to connect to the content on the computers in your home network. To play music, movies, TV shows and podcasts from your iTunes libraries through your Apple TV, you must set up each iTunes library with Home Sharing.