Photobubbles are 360-degree panoramic photographs.  They are essentially spheres the interior surface of which are lined with a seamless series of still images (they may be of a real landscape, the interior of a real room, or renderings from a 3D model).  The viewer is in the center of the sphere and has the ability to look in all directions, as if really standing in the space.  With most photobubble viewing software (like Apple's QuickTimeVR or LivePicture) you can also zoom in and out to look more closely at objects or surfaces in the scene.  

Photobubbles are only simulations of real spaces, since they are not true 3D spaces themselves. As such, they are not to be confused with true virtual reality.  In true virtual reality, you would be free to navigate anywhere in the 3D space, behind objects, under objects, or inside of objects.  Since a photobubble is only a 2D surface with images mapped onto it, there is no 3D space--it is the realism of the images that simulate the experience of being in that place.