Composite Layout allows your nodes to be displayed in complex layouts. Currently, two and three column layouts are provided. You can also add other nodes, blocks, and even CCK fields to your node's layout. The content area of your node is divided into zones and you decide what should appear in those zones. Zones are essentially the same as Drupal blocks, but they apply to nodes rather than the entire site.
You can think of Composite Layout as Drupal blocks for nodes.
There is overlap in functionality between Composite Layout and Panels. Both address the issue of complex layouts, but each has a different approach.
Here is an informal comparison:
Panels is more powerful and flexible (I think, I'm not a Panels expert).
Composite Layout is simpler (I hope).
The user interface is different. You may prefer one or the other.
Composite Layout applies on content types, so it can be turned on for any node. Furthermore, you can have more than one composite layout node type.
If you use the Content Construction Kit, Composite Layout allows you to manage the layout of your CCK fields.
Otherwise, it will probably come down to personal preference as to which is more suitable.