What is Project Server?

Project Server used to be a standalone product with some integration with SharePoint. Project Server 2010 is completely integrated with SharePoint (a good thing) and offers Projects management features such as resource planning (given a limited set of resources, how do I allocate them across a number of projects), Portfolio planning (which projects should I invest in) and project status tracking. It's a valuable tool for organizations that manage lots of projects and need to balance competing demands for resources and money across multiple projects.

Project server is nothing but project management . 

Right now all project managers will use this tool to list all Project,tasks,budget,developer time,scope. 

If we integrate this into SharePoint so we no need to go separately project server to see the project list and updates, progress 

We can see from SharePoint where it will easily integrate. 

If you update in SharePoint it will update in project server and if you update project server it will update in SharePoint. 

WARNING - If you decide to install Project Server 2010 with your SP 2010 environment beware! This is a once and done process and can never be undone.

Before installing the tool carefully review it to make sure if fits your needs. It can be overwhelming to organizations , even those with deep PPM skills by using a web-based tool.

It's another set of binaries that you have to install onto your 2010 farm (must be Enterprise) and needs its own PIDKEY, you will need to install Project Server on each of your SharePoint servers, it will create a load more databases on your SQL Server. 

Project Server Service Packs & CUs come out in line with SharePoint.

Important Links:

http://technet.microsoft.com/en-us/library/ee662109.aspx

for 2010

http://technet.microsoft.com/en-us/library/cc197677(office.12).aspx

for 2007