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CEC stands for Consumer Electronics Control. CEC is part of the specification of the High-definition Multimedia Interface (HDMI). It expands upon the intelligent features that HDMI tries to offer to home theater systems, but could be considered a luxury as its implementation in HDMI-compliant equipment in not mandatory. For this reason, a lot of consumer electronics devices available today with HDMI connectors do not support Consumer Electronics Control features.
While the addition of CEC features is up to the manufacturer, an implementation of the feature must be compliant with the HDMI specification -- ensuring users that mixing and matching capable devices is not a problem. CEC aims to make devices in a home system communicate with one another like they haven't before, allowing them to control each other.
An example of CECs offered features is "One Touch Play". In effect, this means that a user will need to just press one single button to turn on all devices that are required to play back content -- so for example, a source device like an HD DVD player will automatically switch on the display device (television) and also any surround sound system needed for playback.
There is also "System Standby", which again allows the user to effect several devices with the touch of one button; in this case, setting them all on standby. "One Touch Record" will allow a user to record anything being displayed on a TV screen to a selected device connected within the equipment.
One of the more interesting of the features is "Deck Control". This allows a user to control one device with instructions from another, like using the TV remote to control a camcorder connected to the TV.
For more information on CEC and HDMI, read this guide.