It's a way to help Google find and spider your site. You create an XML file similar to www.hostingrefuge.com/sitemap6.xml and then submit it to Google (I believe Yahoo do a similar system too) and it is supposed to help with SEO type things.
We are using them - we created a small application for our hosting clients actually. They all seem to like the little stats that is provided to them in the Google Admin Side
I just set up an auto sitemap generator here which creates the sitemap for Google and the text version for Yahoo. It seems to have worked pretty good! I notice search results are up in Yahoo and the site seems to be a little ahead in search engine hits this month.