Output is to stdout (but feel free to have the shell redirect to a file).
Input is read from stdin, like all other YUV4MPEG2 filters and tools. YUV4MPEG2 streams contain frames using the Y'CbCr colorspace (ITU-R BT.601). y4mtoppm will convert each pixel to the usual R'G'B' colorspace used for computer graphics.
YUV4MPEG2 streams may (often!) have subsampled chroma planes. y4mtoppm can upsample "4:2:0 JPEG" streams using a simple, lousy algorithm. Better results will be obtained using a filters such as y4mscaler(1) which are capable of general-purpose subsampling operations. y4mtoppm will fail on streams which have chroma subsampling modes other than 4:4:4 or 4:2:0-JPEG.
For interlaced streams, these operations are performed on each field individually. Fields can be output as separate PPM images in time-order (default), or interleaved into full-frame images.
If multiple PPM images are generated, they are simply output one after another. If you want to turn such a "multi-image" PPM stream/file into individual files, use pnmsplit. (Some PNM filters can process multi-image files/streams; however, many written before June 2000 will only process the first image.)
y4mtoppm and ppmtoy4m are inverses of each other; you can pipe the output of one into the other, and vice-versa. Note that the colorspace (and subsampling) operations are lossy in both directions. And, when converting to PPM, information on interlacing and sample aspect ratio is lost (but can be reconstructed by supplying command-line arguments to ppmtoy4m).