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Vanilla beans come from the only fruit-bearing orchid. The beans are picked while green, and slowly cured over a period of months. The flavor of a vanilla bean comes from enzymes that are activated by the repeated sweating and drying of the curing process. The entire pods is edible - many recipes call for only the scraped out seeds, but the leftover pods can be used to flavor sugar or alcohol, or dried and ground.
Whole vanilla beans are very useful for baking applications. You can flavor sweet sauces, ice cream, cakes and cookies, or simply make your own vanilla sugar. Add several beans to a bottle of high quality vodka, let it sit for a few weeks, and you'll have your own homemade vanilla extract (that's also tasty over ice!).