WinFS is common data store with an advanced form of relations. Lets say I work in the Widget industry, and I have to run an Widget Specific application. Using WinFS I could develop a schema for the data that I want to store -- and just by using WinFS I would get a lot of advanced capabilities.
Where it gets really interesting though, is if your industry adopts your schema, or comes up with one on their own, another application would be able to use the same data store, if you set the security permissions to allow them to do so.
Contacts is the obvious example used, because it is a concept that everyone uses -- the scema will be a little more specific, but once you have your contacts in WinFS, other applications that deal with Contacts can use that common data store so that they are dealing with the contact objects, or sub or super sets, in the same way. If I change the Work phone number for a contact in my Widgets application, that information will also be changed in Microsoft Outlook.
It is hard to imagine right now what this means, but it opens up enormous potential in applications interacting with one another. Presumably, this puts a lot of pressure on industries to agree upon schemas, and all sorts of new incentives for developing software.
In my opinion it is a bigger change in software, if it works, than GUIs or the Internet.