The Schengen Agreement, like the euro, is a key European Union policy area in which the UK does not participate. It is an area without border controls between 22 of the 28 EU countries plus four other non-EU participants (Iceland, Liechtenstein, Norway and Switzerland)— it covers 4.3 million square kilometres of land where over 400 million people live.
Originally it was not a part of EU law, but was an idea implemented in Belgium, France, Luxembourg, the Netherlands, and West Germany in 1985. When it was made EU law in 1997 both the UK and Ireland opted not to join, choosing instead to keep the Common Travel Area — a similar borderless area involving the UK, Ireland, the Isle of Man, and the Channel Islands. The other EU members which are not involved in the Schengen Area (Bulgaria, Croatia, Cyprus, Romania) are all legally bound to join once the EU decides they are suitable members. This means that in the future, it will be possible to drive from Portugal to Greece without showing a passport!
It is not known whether UK participation would ultimately change much regarding travel between here and the continent, as all existing modes of transport require some form of ID for security purposes as well as border controls. Perhaps the biggest change would be that the UK’s policy on visas for foreigners would be decided centrally within the EU rather than only in the UK.
As the UK is not a member of the Schengen Area, and most likely shan’t be any time soon, the UK does have more control over its borders than most EU countries. Freedom of movement for citizens of EU countries still applies, but the UK still has the right to decide which citizens of non-EU (and Schengen) states may or may not enter the country. A visa to Schengen countries is not at all valid for travel to the UK.