I do a decent amount of audio recording and chatting, but I don't ever remember seeing this option in System Preferences until last night. Turning on the "Use ambient noise reduction" feature under the Input tab of the Sound pane can help cut out the TV or dogs barking in the background, though it obviously isn't an end-all solution. A quiet, sound proofed setup is still ideal, but this setting should help for those times when 'ideal' just isn't possible. The setting should work with your Mac's built-in microphone, as well as any external mics you plug in.
[Update: From the comments, it sounds like this might only be an option on Apple's Intel-based notebooks. Readers are reporting that PowerBooks, iBooks, G5 iMacs and even Core Duo Mac minis (an Intel non-portable) don't have the feature. This is very interesting, and suggests that it could be due to an actual update to the microphone hardware in the MacBook/Pros since, as far as I know, noise cancellation typically involves a dedicated chip for this kind of functionality. Only certain mobile phones, for example, actually have noise cancellation, and I believe that is also due to the presence of a specific chip.]