The key to this kind of bargain-basement supercomputing is tying together standard PCs with Linux. The combination of low-cost, universally available source code and the open source development model that Linux offers makes it practical to build high-performance computers cheaply.
Linux also offers a way around the software bottleneck that has plagued supercomputers for years. Don't think that using standard processors is limiting. The current supercomputer champ, ASCI Red at Sandia National Labs, uses 9632 Intel processors to crank out a 2379.6 on the standard Linpack Rmax benchmark.
The reason these systems are so effective is that there are a great many very big, very complicated problems that naturally break down into iterations of the same, much simpler, problem. That describes everything from forecasting the weather to doing computer animation to running large, computationally-intense business applications. While the parts of the problem may be mind-numbingly complex by human standards, the processor in even a $2000 PC can handle them without breaking a sweat. If you can divide the project among multiple processors and let them work on their parts at the same time, you can reduce enormously the time it takes to get a solution.
Some problems, by their nature, don't divide into chunks that you can parcel out among processors. And there are others whose chunks are too large to run on a single microprocessor, or even an SMP (symmetrical multiprocessing) cluster. Tasks which require very large amounts of traffic between each node (more, say, than 2Gbit/s) are also unsuited to Beowulf design at present, since the network connecting the machines will necessarily determine the maximum amount of data each node can receive or transmit.
A Beowulf-class computer is now a recognised designation in the supercomputer community, and the list of such computers is up in the hundreds and growing every day. For an in-depth analysis of the type of Beowulf machines, and the software that is now being put together to run them, go to the Enterprise section of LinuxWorld.com.au.