The second-generation libraries, including iQuery, Prototype, the Dojo Toolkit, and the Yahoo! User Interface library (YUI) provide a high-level approach to web page manipulation, finally allowing programmers to focus on the functionality of the web page, rather than the data traversal and manipulation details.
The jQuery and Prototype libraries offer similar functionality (although they also have some important differences), and your choice of one or the other would usually be influenced by other considerations; for example, existing code or knowledge of the project team. Not surprisingly, both are used by very large websites, some sites (Digg, for example) use both.
When I had to decide which library to choose, I leaned toward jQuery due to its support of CSS and XPath selectors (my websites rely heavily on both technologies) and the chaining concept, which allows you to write concise and easy-to-understand code.