A vinyl cutter is a device similar to a printer or plotter that is used to create designs on rolls of self-adhesive vinyl (more about that later).
Vinyl cutters use either servo or stepper motors to drive a roller to feed the vinyl in and out and the cutter head left and right, creating two axes for plotting graphic output from a computer. Typically these files are .eps, .ai, .svg or similar files, as long as they are vector files. I may make a post later about the difference between vector and bitmap files, but there are tons of good resources on Google regarding this.
Vinyl cutters are very similar to old-school pen-type plotters, except instead of colored markers for the "head", they have a small sharp blade that rotates. The downward pressure and amount of blade protruding are set precisely to cut through the vinyl, but not through the backing paper.
After the design outline is cutout, the undesired vinyl is removed (known as weeding) and you are left with your RTA (Ready to Apply) vinyl graphic/decal.
There are lots of different brands and sizes of vinyl cutters, from Cricuts that only cut 12" wide to 54" wide models. There are different qualities of vinyl cutters as well, from cheap Chinese cutters (mine) to good quality Rolands and Graphtecs.
Enough about this for now. I don't want this blog to turn into a stale, boring primer on vinyl graphics..