The rehearsal dinner is often the time when the two families meet for the very first time. Basically, the night before you get married, you go through a dry-run of the ceremony with entire wedding party. After you suffer through that, tradition calls for a dinner hosted by the groom's parents. It used to be for just the members of the wedding party like bridesmaids and groomsmen, but it has evolved to include the folks who are visiting from out of town, as a way to say thank you for making the effort to come to the wedding. Like the wedding itself, the rehearsal dinner should reflect the tastes of the bride and groom.
Some people prefer a casual affair, as a welcome respite from the next day's more formal events.
Just about any restaurant that has a banquet room to rent can accommodate a rehearsal dinner. Members of the wedding party often choose this time to present their toasts, some ribald, some heartfelt, to the waning moments of their friends' single status. This also helps to keep your friends in check when they might otherwise tell a story that you would rather forget.