Circular needles are mainly for projects knit in the round (i.e., in a tube); however, many (dare I say "most") experienced knitters use circular needles for just about everything because they can be used in place of straight needles, too.
Circs are particularly handy when you have a worked-flat project with lots of stitches. The connecting cable between the circular needles allows the bulk of the project to rest in your lap; thus, taking a strain off your wrists and hands.
For projects that require a small tube (such as hats and mittens), many knitters still use circular needles by using a variety of methods for when the knitting becomes too short to fit around the circs: magic loop, two circular needles, or traveling loop. Check out the videos on this site to see the first two mentioned: http://www.knittinghelp.com/videos/advanced-techniques
And here's some information about traveling loop: http://impeccableknits.wordpress.com/traveling-loop/