It sets you apart from your fellow students by recognizing that you went beyond the basic graduation requirements to learn more skills and become a better thinker and doer. You will be recognized for this accomplishment at graduation, you can list this accomplishment on your resume, and potential employers will certainly notice!
First, you must be accepted into the honors college, either upon admission or by a separate application after admission. Second, you must receive 30 credits of honors courses. (These are designated with an "H" after the course number.) Third, you must write an honors thesis, which corresponds to six credits of those required. Finally, you must have a minimum 3.5 cumulative UA GPA.
See the answer to the first question. But you will also get the benefits of (a) working on a project bigger than a single class: the honors thesis is worked on and written throughout your senior year; employers appreciate students who demonstrate that they can work successfully on such projects, (b) you get more direct and personal interactions with your faculty advisor, which is fun and which could translate directly into a stronger recommendation letter, (c) you get to work with cool hardware and software that is not available to other students, and (d) you get to interact with graduate students and other honors undergraduate students.
An honors thesis involves "a level of depth within the topic equivalent to a point between a large undergraduate research paper and a Master's thesis." It might be primarily a research paper or it might be primarily a software system that you design and implement, with an attached short description. It will be developed individually or within a group. You will plan the thesis project in the spring semester of your junior year and execute it during the fall and spring semesters of your senior year (though work in the summer is certainly allowed).
Yes, and no. Certainly if you are considering that option, you should strive to graduate with honors, as graduate schools will appreciate that of their applicants. But if you are striving for an interesting software design or development position, especially at a leading employer such as Google, IBM, Intel, Microsoft, or Motorola, you should also consider honors courses and the honors thesis. These experiences will be valuable to you and will signal to top companies that you are more focused and more capable than the standard UA undergraduate. Honors projects are relevant both to students who want to do research and to students who want experience with cutting-edge software development.
These are projects for which you also receive academic credit (generally 3 credits per semester). In these projects you will learn about the research topic and will work on supporting these projects, such as by implementing portions of a software system, maintaining web pages, developing test scripts, writing documentation, running demos, and other important efforts to further the projects. You will be supervised by a faculty member and will often work closely with other undergraduate and graduate students. You can expect your contributions to be recognized.