The internals are nothing to write home about, but that's by design. The idea is to keep the Raspberry Pi simultaneously useful and affordable, and they've succeeded wonderfully in that regard.
There are two models available – a base model for $25 and a slightly improved one for $35. They both offer largely the same hardware with the $35 model offering an Ethernet port and an additional USB 2.0 port.
On a circuit board a little larger than a business card, both models include 256 MB of RAM, a 700 MHz processor, a Broadcom video chip, a 3.5mm audio jack, an SD card slot, RCA and HDMI ports, and a micro USB port for power.