It is a Battle.net authenticator and digital pet. It grows with care and feeding, starting as an egg. If it becomes unhappy, it will only give partial authentication codes, requiring the owner to recall the rest of the code. It features a 16 bit display and dozens of possible background colors.
The race of the pet does not need to be zerg, it will instead be based on the games and races played. (For instance, a Warcraft-themed pet series is available.)
In addition, the RL Friend Finder Sensoring System will alert a Zergotchi-owning friend when they are approaching another one; the pet will light up and make noise.
The Zergotchi is obviously based on the Tamagotchi, a digital pet originally sold in Japan.