The BBC has a wonderful site about this year's contest and the contest in general. The contest is a pop song competition which European countries compete in, kind of like American Idol meets the Olympics.
The contest is a cultural phenomenon that says alot about which countries choose to be "European" in nature. The countries involved in the process were the Central Western nations with expansion first to the west then into the former Soviet bloc. Non-European continent countries have competed including Israel, Armenia, Georgia, Azerbaijan, and Morocco. Sadly, Morocco and Lebanon currently are not involved because their governments favor not recognizing Israel over closer cultural ties to the West.
Culture is a sensitive issue in Eurovision. Proud France freaked out when they found out their entry had English in it. Austria did not enter this year in part because of diplomatic issues with host Serbia. And imagine if Kosovo wants to have an entry! Countries such as Egypt, Libya, and Iraq are eligible to compete because they are in the European Broadcasting Area but choose not to be part of the European cultural sphere.