Telnet is about the oldest way of setting up a two way TCP connection I guess... Not sure though...
It is safe in local networks where you trust every member of the network... as Telnet provides you a shell access (like on your local machine, typing commands from the command line) on a remote computer, which eliminates the need to get to the remote machine physically.
As it is old - fashioned and unencrypted, like mritch says, you should consider ssh (secure shell) to log in to remote machines when you need passwords to authenticate. a Telnet server is needed on the other end for telnet, and for SSH you obviously need an SSH server on the other end...
I don't know about a linux distribution that doesn't come with ssh server out-of-the-box these days..
I currently use telnet for no other means than to test TCP connections to services like HTTP, SMTP, to test functionality.
Hope this helps instead of making you confused now.
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