In 2008 when Apple released the mini-DisplayPort connection in its systems, the port at first seemed like a redundant technology with no implemented benefit over the mini- and micro-DVI offerings that Apple had in laptop systems. Nevertheless, as Apple started using DisplayPort in more systems, its extra features started being implemented, with one being the ability to use an iMac as an external monitor in Target Display mode.
To use Target Display mode, all you have to do is connect an iMac to another DisplayPort-enabled Mac and then press Command-F2 on the iMac's keyboard. After doing this, the second Mac's audio and video signals will be diverted to the iMac display and speakers.
While this DisplayPort feature was nice (especially for laptop owners), in the latest iMac revision the inclusion of Thunderbolt on DisplayPort connections has limited its Target Display feature. Even though the new Thunderbolt connections support DisplayPort data, the Target Display mode unfortunately will not work with pure DisplayPort connections. Therefore, if you have a DisplayPort-equipped Mac and wish to use the new mid-2011 iMac's display as an external monitor, you will not be able to.
The new Thunderbolt-equipped Macs do support Target Display mode, but this setup will only work with other Macs that use Thunderbolt.
This incompatibility may cause a little confusion for folks since the DisplayPort and Thunderbolt connections both use the same port dimensions, and since Thunderbolt does support the DisplayPort protocols. The easiest way to determine compatibility with the connections, even though they have the same port geometry, is that DisplayPort is not compatible with connecting to a Thunderbolt device, but Thunderbolt devices are compatible with connecting to a DisplayPort device.
Apple is clearly moving its whole line of Macs to include Thunderbolt, so soon any newly purchased Mac system should be able to use Target Display mode on Apple's iMacs; however, for those who have current DisplayPort-only Macs, be aware that their use with Thunderbolt systems may not work as expected.