Near Field Communication (NFC) is a set of short-range wireless technologies, typically requiring a distance of 4cm or less to initiate a connection. NFC allows you to share small payloads of data between an NFC tag and an Android-powered device, or between two Android-powered devices.
Tags can range in complexity. Simple tags offer just read and write semantics, sometimes with one-time-programmable areas to make the card read-only. More complex tags offer math operations, and have cryptographic hardware to authenticate access to a sector. The most sophisticated tags contain operating environments, allowing complex interactions with code executing on the tag. The data stored in the tag can also be written in a variety of formats, but many of the Android framework APIs are based around a NFC Forum standard called NDEF (NFC Data Exchange Format). http://developer.android.com/guide/topics/connectivity/nfc/index.html