With Windows XP, ClearType delivers improved font display quality over traditional forms of font smoothing or anti-aliasing. ClearType improves readability on color LCD displays with a digital interface, such as those in laptops and high-quality flat panel displays. Readability on CRT screens can also be somewhat improved.

Concept
Microsoft concluded that reading is a form of pattern recognition. People become immersed in reading only when word recognition is a subconscious task and the conscious mind is free to read the text for meaning.

What was discovered is that word recognition is only subconscious when typographical elements such as the shape and weight of letterforms, and the spacing between letters work together to present words as easily recognized patterns. With these findings in mind, Microsoft began taking a closer look at how type was being rendered on screens.

 
ClearType font rendering:-

 

  1. This is how the lowercase 'm' looks in the original typeface outline.
  2. This is a close-up of the 'm' when rendered on screen without ClearType. Notice how the 'm' has hard, jagged stair-steps or 'jaggies' in the stems, or 'legs' of the 'm'.
  3. This is a close-up of the 'm' when rendered on screen with ClearType. Notice how the 'jaggies' are much more subtle and the letter is rendered more smoothly.

Reference: http://www.microsoft.com/typography/cleartype/tuner/Step1.aspx