I believe it originated within the photography community then migrated into the scrapbooking community. But I could be wrong.
It is a challenge. One that requires (or at least highly suggests) that you take one photo a day. It is a worthwhile endeavor especially for those with children at home.
On the scrapbooking side of it, you would then take the 7 photos and do a page with them, either making up your own layout or using one of the multitude of "365" templates available (for free or for sale). You will also find weekly all the way to yearly templates.
Whichever way you go, make sure that you have room for journaling. Part of the reason for the 365 project is to create a visual diary of sorts so that future generations have an idea of how you lived. And it will just be fun to see over the years how you have changed. Oh, also make sure you date the page either by putting a date on each picture or a separate layer with the date range, i.e.: Nov. 7-13, 2010.
Now is the time to take the plunge and start your own 365 project.
On my template below, I didn't have pictures for each day of the week. Instead I chose to pick out pictures that represented something special throughout the month: The renaissance fair, a new shopping center, a new computer room, playtime, a birthday and lunch with a friend. I put the day on each of the pictures then in my journaling boxes started each paragraph with the day and a description. If you find that you have missed a day or two in your 365 project, this is one way to keep it going.
Scraps, Mye De Leon & Designs by Helly; Font: Pea Pumpkin Peter