Environment variables can be used for many purposes in scripts or manually on command line. Sometimes it can be very helpful to know environmental variables to make easy automate scripts and create complex programs without user interaction. To test these variables just pen a cmd prompt and type echo and the variable, here some examples :

%WinDir% , this variable points to the Windows directory

%CommonProgramFiles%, this variable points to Program Files directory, which stores all the installed program of Windows.

But the real power is when you create a shell program , in these case there here are many variables to use and I find really helpful the following handy list of Environment Variable with syntax on different OS :

Default Values on Microsoft Windows 

(click on image below to see larger version)

(Wikipedia)

Other helpful information and reference about env. variables and how can be managed are available here:

Environment variable (Wikipedia)

Command shell overview  (Microsoft)

Windows PowerShell Tip: Creating and Modifying Environment Variables

Recognized Environment Variables

How To Manage Environment Variables in Windows XP ( Microsoft )