Ripping - This is the term used for the process of importing songs from CDs onto a computer. When used with for an iPod, it refers to importing songs from CD into iTunes.
Songs on CDs are stored as high-quality, uncompressed files to deliver the best possible sound quality. Songs in this format create large files. That's why most CDs only have 70-80 minutes of music/600-700 MB of data on them. Storing music files that large on a computer or iPod/iPhone wouldn't be practical, though. As a result, when users rip CDs they create convert the files to lower-quality versions.
Songs on CDs are generally converted to the MP3 or AAC audio formats when ripped. These formats create slightly files that have slightly lower-quality sound, but that take up only about 10% of the size of a CD-quality file.
Some CDs use digital rights management, or DRM, which can prevent them from being ripped. This is designed to stop the contents of the CD from being pirated or shared online.
More on CD ripping at Wikipedia.