RSS is basically an auto update service of a sort, it allows people that are subscribed to it, either through the internet or a mobile device, to see when a website is updated by sending either a summary or a complete copy of the update to the person via the subscription. This is useful for sites that update regularly such as blogs as it allows a subscriber to see whether any relevant updates have been made with out the need to visit the website itself.
Google Reader is an aggregator of feeds, both Atom and RSS, so that they can all be viewed in one location. It allows people to check the feeds they are subscribed to very rapidly, rather than having to check them each individually they can scroll through the list to see which have updated recently. It also allows for feeds to be shared between users of it.
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