A MAC address is a unique identifying number that works in a similar way to a TCP/IP address, however this magic number is usually assigned to a network device when it is manufactured. If your network uses TCP/IP, IPX or even NetBeui then all of these protocols will rely on the MAC address.
MAC addresses are usually imprinted into the hardware and can't be changed, however it is possible to spoof a MAC address by altering the software driver. This is a fairly easy thing to set and can be accomplished by using the Windows Device Manager.
What can it be used for?
Network and Wireless systems can implement a security feature that will prevent unauthorised computers from gaining access to the network. The option is usually called MAC filtering on a wireless access point or router. It works by inspecting the data packet that is sent from the computer, if the MAC address matches a number on a pre-defined table, the data is allows to pass through the network, otherwise the data is lost.
MAC filtering, although reasonabily secure, is should not be relied upon to provide total protection to your network. Use of filtering on wireless systems should also be accompanied with some form of data encryption such as WEP or WPAPSK.
More details about a MAC address can be found at. http://en.wikipedia.org/wiki/MAC_address