While many libraries with ample budgets use citation tools like EndNote and RefWorks, there are alternatives for libraries that need to save every dime.
Zotero is an open source project created by the Center for History and New Media at George Mason University and is supported by grants from the Institute for Museum and Library Studies, the Andrew W. Mellon Foundation and the Alfred P. Sloan Foundation. It is in the midst of a lawsuit imposed upon them by Thomson Reuters, the creators of EndNote.
Connotea is provided by the Nature publishing group and is focused towards scientists, clinicians and researchers, CiteULike is supported by the Springer publishing group and is also heavily populated by scientific users. These two are also similar because they have social networking features like tagging and the ability to view, share and add other peoples citations to your collection.