The Schengen Agreement, as far as travelers are concerned, basically dissolves borders within all member countries. Once you have entered the Schengen area, you may travel freely within all member countries for 90 days without having to cross passport control points. If you are a citizen of one of these countries, you can travel within all member countries without any limits and without a passport.
Notice that sometimes at Schengen borders, especially while going with the train, policemen do come on board and ask to see your documents. Usually it's trouble-free, but they tend to harass Balkans and Turks more often than others.
26 European states have signed the agreement, including all European Union countries spare Ireland and the United Kingdom and a few non-EU countries. 15 of these countries have implemented the agreement so far, including:
Some countries are aiming to implement the agreement until 2008, including: