Search-engine friendly URLs. Refers to URLs that are descriptive in a way that search engines can understand. Normal Joomla! URLs look something like this: http://www.yoursite.org/index.php?option=com_content&view=section&id=3&Itemid=41
You can optionally have URLs display to look like static HTML pages like this: http://www.yoursite.org/faq.html
Joomla! 1.5 has built-in optionos for SEF URLs. These are enabled by changing the ""SEO Settings"" in the Site tab in the Global Configuration screen in the Joomla! back-end. There are also third-party extensions that create SEF URLs for Joomla!.
Reference: http://docs.joomla.org/Glossary