A Psuedowire is an industry term for transport of any frames over an MPLS network using MPLS to encapsulate and LDP as a signalling mechanism.  Cisco calls this AToM for Any Transport over MPLS and this is the building block of Layer 2 VPNs over MPLS.

Luca Martini, originally of Level 3 and later at Cisco had the requirement to deliver Frame Relay service to end customers over MPLS.  He developed the prototype, which then extended to ATM, Ethernet VLAN, PPP Frames, and HDLC frames; all over MPLS. Pseudowires using this mechanism are known as Martini Tunnels.

Pseudowires can be used to deliver two types of services to end users: virtual private wire service (VPWS) and virtual  private LAN service (VPLS).  With VPWS, the provider delivers the virtual equivalent of a leased line, where the customer is responsible for managing the IP routing.  If there are disparate transport types, internetworking must be done at teh PEs to translate the Layer 2 frames from one transport type to another.  With VPLS, different sites can share an Ethernet broadcast domain through the use of pseudowires, providing any-to-any connectivity.