Telnet is an application included within the TCP/IP "suite". It is used to make a remote connection to a device, or host, and run remote console type commands. If you run an application which is "menu driven" or command line driven, you can probably do it with Telnet.
This makes it GREAT for working on network equipment in particular, although one can run a Telnet daemon, or service, on a server to allow command line access to the server.
There is next to zero configuration for telnet on the client side. Basically, you would type something like this at a command line (DOS Prompt):
c:\telnet 192.168.1.1
Typing the above command would attempt to open a telnet session to the IP address. The device at the IP address would have to be running a Telnet daemon/service and listening for Telnet connections.
Configuring for telnet on the network infrastructure in between and on the destination is slightly more involved.
You have to allow telnet through your firewall coming in from the outside. This is a HUGE security risk and is typically disallowed by most organizations. Also, outside devices, such as internet routers typically do not allow Telnet to connect to the device, simply by not running it or denying all connections. Yes, there are some routers on the internet you can Telnet too, but these are typically User mode access only - intended to be testing tools for networking pros.
On a network device, and probably on a server, you have more configuration options for Telnet. You can allow an incoming session only from certain IP addresses, during certain times, you can set usernames and passwords or you can specify a RADIUS server for authentication, and a few others.
Be aware, Telnet is clear text - unencrypted at all. For this reason, Telnet is being phased out in usage by Networking Professionals in favor of SSH - Secure SHell. SSH will do the same thing but is encrypted.
Oh, I almost forgot, you can tell Telnet to connect over a certain port. For this reason, it is a neat trick to test whether you have connectivity to the IP address as well as the port. Depending on what you're Telnetting to, you will get different responses if the port is open. For instance,
c:\telnet 192.168.1.1:80
This would specify to make a Telnet connection to the IP address over port 80, http, to test to see if there is a web server that is alive and listening.
HTH