The inetd daemon is sometimes referred to as a Super-Server because it manages connections for many services. Instead of starting multiple applications, only the inetd service needs to be started. When a connection is received for a service that is managed by inetd, it determines which program the connection is destined for, spawns a process for that program, and delegates the program a socket. Using inetd for services that are not heavily used can reduce system load, when compared to running each daemon individually in stand-alone mode.

Configuration file is /etc/inetd.conf
After making a change, you need to restart/reload the server.

On Debian (and similar), inetd can be restarted with the following

# /etc/init.d/openbsd-inetd restart

On RedHat (and similar) using this:

# service inetd reload

Example of configuration and explanation:

For an example, telnet can be configured as follows:

telnet  stream  tcp6    nowait  root    /usr/sbin/telnetd      telnetd -a

The first word, telnet, is the official name of the service. It is resolved using the system database to map port numbers and protocols to service names. In this case, /etc/services should contain:

telnet          23/tcp

The second and third words describe the type of socket and underlying protocol respectively. The /etc/protocols database is consulted.

The fourth word is the wait/nowait switch. A single-threaded server expects inetd to wait until it finishes reading all the data. Otherwise inetd lets the server run and spawns new, concurrent processes for new requests.

The fifth word is the user name, from the /etc/passwd/ database, that the service program should run as.

Finally, the path and the arguments of an external program are given. As usual, the first argument is the program name. In the example, inetd is told to launch the program /usr/sbin/telnetd with the command line arguments telnetd -a. inetd automatically hooks the socket to stdin, stdout, and stderr of the server program.

Generally TCP sockets are handled by spawning a separate server to handle each connection concurrently. UDP sockets are generally handled by a single server instance that handles all packets on that port.

Sources
http://www.freebsd.org/doc/handbook/network-inetd.html
http://en.wikipedia.org/wiki/Inetd