There are 3 kinds of tunnels in Linux. There's IP in IP tunneling, GRE tunneling and tunnels that live outside the kernel (like, for example PPTP).
Tunnels can be used to do some very unusual and very cool stuff. They can also make things go horribly wrong when you don't configure them right. Don't point your default route to a tunnel device unless you know EXACTLY what you are doing :-). Furthermore, tunneling increases overhead, because it needs an extra set of IP headers. Typically this is 20 bytes per packet, so if the normal packet size (MTU) on a network is 1500 bytes, a packet that is sent through a tunnel can only be 1480 bytes big. This is not necessarily a problem, but be sure to read up on IP packet fragmentation/reassembly when you plan to connect large networks with tunnels. Oh, and of course, the fastest way to dig a tunnel is to dig at both sides.