This term is used a lot in photography and it refers to out of focus background of blur. It's tied quite closely to depth of field but is more interested in the quality of the blur. In fact, some people would say that you get "good" bokeh and "bad" bokeh. I've never been to good at telling the difference as it really comes down to personal preference.
The easiest way to see an example of bokeh is to take a shot of someone at night time with street lights in the back ground as bokeh appears really easily from blurred highlights and distant lights. You'll see it all the time on TV as movie
cameras seem to be excellent at producing this.
The ideal bokeh should be perfect circles but this is very difficult with lower end lenses. Often the blades of the aperture cause pentagons and hexagons - you can see how my 50mm f1.8 has created decent blur but on closer inspection the would-be circles are actually heptagons by the seven blades of the lens.
It's also worth noting that too small or too large an aperture will cause bad bokeh. I'm not going to tell you why quite yet. Try experimenting with f4, f10 and f22 and see the difference for yourself. Remember, you are aiming for as perfect a circle as possible.