Markdown is a fairly simple way for people who write blogs to write their entries without using HTML. For example, "_this_ is markup. I **really** mean it." becomes "this is markup. I really mean it." There are other features for including links, images, lists, quotes, etc... that are, in general, really elegant for people who don't know HTML, and even for people that do use HTML, as it saves both time and effort. It's a whole lot easier to type *bold*, than it is to write <b>bold</b>, and you don't end up with problems where you accidentally forget to close an HTML tag.
Despite this, I don't entirely like it. You can still include HTML in the entry. Initially, this sounds like a good feature. You're typing your entry and you decide that you want to paste in an HTML table, so all you have to do is paste it into your entry. You get the best of both works. Markdown for the simple stuff, HTML when you need it.
In my opinion, this is bad. Markdown takes the characters *, _, [, ], #, `, and >, and gives them special meaning. HTML takes the characters <, >, and &, and gives them special meaning. With Markdown, you have to be aware of both. To me, this is the worst of both worlds, and if you happen to be a user of Markdown that doesn't know HTML, doesn't it defeat some of the benefits if you have to know whether or not you're writing something that looks like HTML?
The ability to include HTML is there for people that know HTML who want to pop out of Markdown when the what to do markup more complicated than Markdown can provide. It's an understandable crutch to provide, but one that hurts users that don't know HTML. I would have preferred this feature not be in Markdown, or for there to be a special switch to go between Markdown and HTML. The benefits would be:
1. You would never have any bad HTML generated by Markdown, which is one of it's goals. You could paste whatever you like in Markdown, and it would guarantee something valid.
2. Users that don't know HTML don't have to, not even a teensy bit.
3. No confusing grey areas where you have to guess what Markdown is going to do. (bp and I got into a discussion as to how to write '-->' in Markdown, which was only solved once we played around with the online Dingus tool. The correct answer was '-->', which is most likely a bug in the current release.)
4. Bonus: it would be an excellent tool for writing HTML tutorials, as it's hard to write HTML in HTML.
BTW, those interested in Markdown might also be interested Textile, which has similar markup, but is geared slightly more towards people that know HTML/CSS. It includes escapes to switch between it's markup and HTML, but as bp pointed out to me, it doesn't have as nice of syntax for doing blockquotes.