This can vary from subtle differences in sharpness to blurring beyond recognition anything outside the focal point. The point is generally to improve realism, force players to actively scan the field with the character rather than scanning the computer screen with their own eyes, increase difficulty (it's easier for things to slip by outside the focus point and makes it harder to find them even if known), etc.

On the odd side of the coin, this can be used to improve performance in games as less detailed objects and textures can be used inside the blurred and some details can be omitted altogether without any noticeable loss of detail to the player, though this is more common with motion blur.

The difference to motion blur is that the blur is not motion related, occurring even at dead stop. Motion blur also affects even the parts in "focus", or should at least unless the player is following a single object, or moving only forwards or backwards.