Dan's answer is good.
1. A stimulus package is the name for government spending money specifically to try to stimulate economic activity.
2. It was created in response to the economic recession. A recession is a period when the economy shrinks, i.e. the total value of all transactions is less. Governments do stimulus packages to try to reduce unemployment, i.e. to cause businesses to employ more people, even though the unemployment is caused by governments in the first place. If governments stopped making it illegal to employ people at the market rate, and if they stopped printing money, there wouldn't be economic recession, and a problem of unemployment in the first place. But because governments do print money, and this causes recessions, and because governments do make it illegal to employ people at the market rate, and this causes unemployment, governments always think the solution is even *more* government action, even though the solution is less.
3. A stimulus package works by the government taking money from one group of people and giving it to another. This can be done in a number of ways - by taxation, by printing more money, or by lowering interest rates. They all amount to the same thing - the idea that we can create wealth by taking from one group and giving to another.
We can't, and it's nonsense. It's like saying "I've got a great idea how we could all get richer! We burn down all the houses in Dubbo. This will stimulate the building industry. There'll be jobs for brickies, carpenters, glaziers." It's literally that stupid. This is what Julia Gillard, Wayne Swan, Bob Brown, and also the coalition politicians really believe.
The reason it's stupid is because if the purpose of the exercise is to create "jobs", then the more wasteful we are, the more jobs we'll create. It's like saying we can get rich by employing people to dig holes and fill them in again. It's as stupid as thinking we can get rich by smashing windows, or burning down our houses. It takes no account of the fact that if we didn't have the stimulus package, we would have all the same money AND all the houses in Dubbo.
The government spent the money on the "Building the Education Revolution". They got schools covered outdoor recreation areas. So if you were a taxpayer, and you wanted the money because you had worked to earn it, or to pay for special educational needs for your child, or to give it to cancer research; or if you were a school and you wanted a library, or to replace a leaky classroom, tough luck, you got covered outdoor recreation areas that nobody wanted, just because the government had decided to buy them to stimulate the economy. And because everyone knew the government was giving the money away specifically to create jobs, they quoted - and the government accepted - like $400,000 for a building worth $100,000.
So the result was waste and stupidity on a grand scale, done with money that would have been better spent, or saved, if it had not been taken from taxpayers in the first place. If anyone in the government had had to pay for this lunacy with their own money, the stimulus package would never have happened. But because they were giving away other people's money, they could act like Santa Claus and try to bribe the stupid and the greedy for votes.
The economic theory saying that this kind of thing makes a country wealthy came from an economist called John Maynard Keynes (pron. "Cains"), and it's called Keynesianism. It's wrong.
For a free, good introduction to proper economics, see www.mises.org