Dolby Atmos is an extra meta-information layer which is (for consumers) layed over a Dolby TrueHD audiotrack (on, for example, BluRay). This extra information provides additional audio which can be positioned within a room (environment) in 3D.
To take a step back;
Dolby 7.1 (I presume you mean Dolby TrueHD 7.1) is an audio track which has 7 ‘normal’ channels and 1 subwoofer channel. These are placed on the locations: Front Left, Center, Front Right, Surround Left, Surround Right, Rear Left and Rear Right.
This creates a 2 dimensional circle around you making it possible to position a sound anywhere on this circle. You can’t, however, position the audio above (or below). Hence the 2D circle.
Dolby Atmos, on the other hand, is in its base form a Dolby TrueHD 7.1 audio track. On top of this, it has additional information stored (small audio tracks and position information) which makes it possible to not only have this audio be placed on the circle around you, but also be positioned ABOVE this circle.
This does, however, require that you have a Dolby Atmos enabled receiver and have extra speakers positioned above your current speakers. Or make use of special “Dolby Atmos Enabled Speakers”.
When you have those, the Dolby Atmos receiver will use the basic TrueHD 7.1 audio track to be played on your normal speakers. And using the extra information it will calculate which height speaker should be used to display that piece of audio information.
If you don’t have height speakers, but do have a Dolby Atmos receiver, the receiver will use the extra information to enhance the basic TrueHD 7.1 audio track.
To sum up; Dolby Atmos can position audio and sound not only around you, but also above you.