It means transmitting audio and multimedia content over the Internet. The way it is used is quite similar to a regular telephone, but the difference is that instead of wiring and using a telephone service provider, an Internet connection is used.
VoIP setup is done using various technologies and methods to establish voice communications over the Internet, i.e. local or wide area networks. VoIP has various features such as recording of calls, creating custom caller ID or voicemail to email. It is also a useful way for organizations to unify communications.