Variable Bitrate. Its an encoding method that uses a lower bitrate for quiet or less complex portions of the song, and a higher bitrate for other portions. Its a common way of getting better quality in the same space. VBR rates are given as an average, since the real rate varies constanly. The LAME MP3 encoder produces quite good quality at an average of approx 192kbps.
Its more complex to decode so older and/or low-end equipment may have problems with it, but basically iPods play VBR fine.
There's a fairly good (but technical) FAQ
here. All pages that I have seen discussing VBR recommend using it, and I do as well.