Luckily, the last couple generations of equipment have made things much easier with the introduction of the HDMI cable. HDMI is a digital standard for transmitting audio and video. Before getting into the details of the different versions, its worth learning a bit about its history.
HDMI is the product of the consumer electronics industry trying to appease the entertainment industry by offering a "secure" link for the transmission of digital video. One of the major concerns of the big movie studios has been the possibility of digital versions of their films being easily copied. To prevent this, the HDMI standard strictly limits what type of machine can recieve an HDMI signal. This process is called "handshaking". HDMI first became prevalent with upscaling DVD players and HD cableboxes. The idea at one point was that any video signals that were higher than DVD resolution could only be transmitted digitally through the HDMI interface. This practice wasn't completely adopted but enough so that the older analog method of providing a high res video signals (called component video and using three different cables) became obsolete. Now, almost every cable box, TV and dvd player use HDMI.
The shift to HDMI was paralleled with the introduction of Bluray and HD-DVD. Both of these formats offered high res video as well as a higher fidelity version of surround audio. Overnight, every A/V receiver on the market was rendered obsolete if it didn't have an HDMI input. Worse, the HDMI standard went through a series of upgrades from 1.0 to 1.1 to 1.2, 1.3 and finally 1.4. These revisions added plenty of functionality but also served as a dividing line between different generations of equipment.
For now, HDMI 1.4 is the current standard. It has features like support for deep color (allowing for more fine variations between colors) that are of no practical use as no equipment or media use them. It does have support for 3D video, which is currently in the same state that HDTV was ten years ago (with TV's available but nothing to watch on them). Most importantly, it provides a connection between any two pieces of equipment with just one cable. HDMI 1.4 appears to be the end of the road for the HDMI standard, it can handle anything that the Bluray format can deliver and a new format is unlikely for many years.
GET BACK TO THE RECEIVERS
Anyone looking to get a new receiver should pay careful attention to what version of HDMI is being supported. If its 1.3 or lower, then its an older model that is probably not worth it unless deeply discounted. A/V receivers tend to be marketed over a broad price range with each brand having several products from the no-frills budget options to behemoth flagship models at around $3-4K. As with most things, neither of the extremes is worth the money. The rest of this article will address the features to be found in a modern receiver.
HDMI switching is the first thing to look for. HDMI receivers are designed to be able to take HDMI signals from different sources (cable box, Xbox, Bluray player), decode the audio to feed a set of surround spearkers and send the video onwards to a TV. You could plug any of these devices directly into the TV but if you are looking for a receiver, presumably its because you want to send the audio to a set of speakers. Using the receiver as the go between for all devices gives a few advantages, notably, you should be able to sync the audio and video signals better. While there are standalone HDMI switches that allow for more devices than the receiver can handle on its own, they sometimes have problems with the built in copy protection methods. Its much better to pick a receiver that has enough HDMI inputs for any devices you want to hook up to it.
The next major feature of A/V receivers is autocalibration, specifically Audyssey. Audyssey uses a microphone hooked up to the reciever and a set of test tones to determine what the optimal listening profile is for your room. All rooms have their own unique acoustic characteristics that can overamplify or mute parts of the frequency range. Audyssey balances all that out. It makes a noticeable difference and its a feature that is well worth it. There are now multiple versions of Audyssey and more details on the differences can be found at www.avsforum.com. In short, you can pay more for additional precision.
Network capabilities are another feature found in modern receivers. This is fairly recent. In general you find two types of network capabilities, DLNA and proprietary services like Pandora, Netflix, etc. DLNA is an industry standard for discovering and playing music and video files over a network. If you have a computer you can share files and any DLNA compliant device should be able to at least see them. Playback is trickier as most devices have a limited range of formats that they support. The proprietary services like Pandora are better supported. Overall, added network functionality isn't worth looking for considering how cheap network devices and HTPCs are. Its ok to have but not worth paying a premium for.
Upscaling is a feature that used to be a major selling point with several competing companies offering upscaling hardware designed to improve picture quality. Nowadays, almost every device has built in upscaling. Upscaling takes a lower resolution video signal, such as a DVD and increases the resolution to HD quality. This doesn't provide much of an increase in picture quality, although bad upscaling may introduce artifacts that make the picture look worse. Generally, a mid-range receiver will have the best upscaling hardware compared to other devices released the same year. However, its a mature market and the differences between upscalers has shrunk considerably. Unless you feel like you can't watch your DVDs without the best possible picture quality there isn't much reason to spend extra for a higher grade of upscaler.
Another feature is multi-zone support. This is generally found in mid-range and higher equipment and lets a receiver play music and sometimes video to two or three additional zones. If you want to be able to play music in the kitchen from the receiver, this feature and some good wiring is what you want.
These five features described above are the main things to look for in an A/V receiver. Often times, they come bundled together. The key to buying an A/V receiver is figuring out which features you really want and looking for the most affordable and reliable solution that provides them. Avsforum is a crucial resource for researching consumer opinions on the quality of any given brand or product.
Finally, in describing receivers I didn't mention a related product, namely the A/V preamp. A/V preamps are the same as receivers but don't include built in amplifiers for driving speakers. They are not as popular an option although in some ways they are superior. The one area where many receivers skimp is on amplification. While you don't really need much power to play very loudly, the built in amplifiers do add heat which lowers product life. Preamps produce less heat and can be coupled with cheap pro amps for a system with plenty of muscle and longevity. Pro amps are resilient and usually significantly cheaper than amps sold for home audio. Further preamps typically have a build quality on par with top range receivers. Personally, I have an Integra preamp, which is part of the Onkyo brand (a nearly identical product line is the Onkyo Pro line which is sold mainly to installers but available online).