Hey Mr Dad,

In terms of Economics and by theory, interest rates are tools that the central banks of countries (in Australia is called the RBA) use to control one primary variable which is inflation.

Definition of inflation by wikipedia.org is the increase in the quantity of money and money substitutes which causes the level of prices of goods and services to increase over time. Which simply means (by my own personal definition), the increase in the supply of money in all of it forms.
There are many forms of inflation but to list a few which i believe are the main ones are called 'Demand-Pull' and 'Supply-push'.

Demand-Pull, as the name states is an increase of demands (in economics, it is called agregate demand) within the economy therefore it push up the price (think of supply and demand).

Cost-Push is exactly the opposite, if there is an increase in the cost of supply, it will push the price up. (in economics, this is called agregate supply)

By economics theory, interest rates are used by central banks to slow down and put pressure on the inflation so the economy wont go out of control so to speak.
To get a clear understanding, you should get a picture of a "buisness cycle" or a "trade cycle", it illustrates when and how central banks will consider to lift up rates or to put it down.

As for Australia, really the main thing you should be watching for is the prices of commodities (the resource sector) and the financial sector just like the US.
Also, you should note that Australia doesnt trade that much directly with the US, however if the US were to hit flat on their face, i believe that it i will definitly have a 'knock-on' effect on to Australia.

Hope that helps,

Peter

ps. btw are u from australia?!? because i am !