Receivers include matrix decoders like PLIIx and DTS:Neo6 that extract rear channels from 5.1 discs. They also include DSP programs like All Channel Stereo to play back 2 channel sources over 5, 6, or 7 channels.
In theory, the extra rear surround speakers for 7.1 create a more enveloping sound field. But if you don't have a lot of room behind you to mount the additional speakers their effect will be diminished.
Personally I think 5.1 is enough for most living rooms.