There are numerous websites up now where you can watch TV shows and movies for free, like hulu.com, thedailyshow.com, etc., but the quality of the video and the smoothness of the streaming varies, and they all have embedded commercials. A lot of new episodes also appear on hulu.com for a limited amount of time, so if you don't watch them soon after they air, you may miss your chance.
Apple TV is essentially an iPod for your TV that allows you to play HD and other video files as well as music files from the iTunes store. The quality is much better, you can watch the files on your TV, and, in the case of purchased files, you can keep them.