A challenge is just a competition for the sake of it. If you have an old radio, and you really would like to see a robot dancing.. Why not give the radio to someone who can make a dancing robot? Or, if you are a company that would like members to .. something.. then feel free to create a challenge, and give away prizes.
It is very easy to make a challenge. However, important: As of October 15, 2010, it is NOT allowed to post a challenge that you can not solve yourself. Reason for this new rule is that in the past we had people with no building experience challenging dream projects, and people with hard problems they could not solve posted as challenges to other.
This is not the idea. The idea is that with challenges you can inspire people, like if you say to someone you are teaching; See, can you make this (knowing that if necessary you can make it yourself, and show how)
There does not have to be a (large) price, and you can take up a challenge even if it is old, or already won by someone else. In general; Although the competition can be harsh, the prizes be real, please do not take this for more than it is; A chance to be game master, and a chance to get inspired or win a competition for fun. :)