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XMPP stands for "eXtensible Messaging and Prescence Protocol". It is often referred to as "Jabber" after the original Jabber.org service, which is still operational today.
XMPP is used for instant messaging -- think along the lines of AIM, MSN Messenger, or Yahoo Messenger. Unlike these, XMPP is an "open protocol", meaning anyone is free to create software supporting it. It is also "federated", meaning it allows you to chat with people on other XMPP servers; for instance, you can register an account on Jabber.org and message someone on jabber.otr.im.
For mor information on XMPP, read this wikipedia article.