It is a one-factor model as it describes interest rate movements as driven by a single source of randomness.
The main state variable of the model is the short rate, which is assumed to follow the stochastic differential equation (under the risk-neutral measure): where dWt is a standard Brownian motion.
The model implies a log-normal distribution for the short rate and therefore the expected value of the money-market account is infinite for any maturity.
The model is used mainly for the pricing of exotic interest rate derivatives such as American and Bermudan bond options and swaptions, once its parameters have been calibrated to the current term structure of interest rates and to the prices or implied volatilities of caps, floors or European swaptions.
Recent work on Perturbation Methods in Credit Derivatives has shown how analytic prices can be conveniently deduced in many such circumstances, as well as for interest rate options.