I'm installing ubuntu server at the moment, and noticed it in the configuration phase.
What does this package do, what is it for?
It sends information about installed packages (but this is disabled by default, you can enable it using
sudo dpkg-reconfigure popularity-contest) for package popularity/usage statistics.
The popularity-contest package sets up a cron job that will periodically anonymously submit to the Ubuntu developers statistics about the most used Ubuntu packages on this system. This information helps us making decisions such as which packages should go on the first CD. It also lets us improve future versions of Ubuntu so that the most popular packages are the ones which are installed automatically for new users.