Circles are the way that Google Plus keeps track of the people you want to follow. When you put someone in a circle, it means two things:
(1) Their updates will now appear in your stream. The default setting on your stream is to see everyone's updates, but you can also choose to just see updates from the people in a particular circle by clicking the name of that circle in the left-hand column.
(2) They can see your posts and updates, provided you chose to share those updates with a circle that includes them.
Bear in mind, a person doesn't need to have you in a circle in order for you to add them to one. They can choose not to see updates from you while still allowing you to see their posts.
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