A built-package format for Python.
A wheel is a ZIP-format archive with a specially formatted filename and the .whl extension. It is designed to contain all the files for a PEP 376 compatible install in a way that is very close to the on-disk format. Many packages will be properly installed with only the "Unpack" step (simply extracting the file onto sys.path), and the unpacked archive preserves enough information to "Spread" (copy data and scripts to their final locations) at any later time.
The wheel project provides a bdist_wheel command for setuptools (requires distribute >= 0.6.28). Wheel files can be installed with a patched pip from https://github.com/dholth/pip.
The pip patch is in flux and is being split into separate `install` and a `build` patches. Check the branch called `wheel` for the most features.
Why not egg?
Python's egg format predates the packaging related standards we have today, the most important being PEP 376 "Database of Installed Python Distributions" which specifies the .dist-info directory (instead of .egg-info) and PEP 345 "Metadata for Python Software Packages 1.2" which specifies how to express dependencies (instead of requires.txt in .egg-info).
Wheel implements these things. It also provides a richer file naming convention that communicates the Python implementation and ABI as well as simply the language version used in a particular package.
Unlike .egg, wheel will be a fully-documented standard at the binary level that is truly easy to install even if you do not want to use the reference implementation.