"Citations" or "web references" are mentions of your business name, address and phone number on other webpages. These mentions can be found on various sites such as a local chamber of commerce page, an online business directory (such as Yellow Pages) and other pages that list various businesses. These citations may or may not be linked to your website.
How important are citations? Take note of this: with all other components being equal, businesses who have a higher number of citations will most likely rank higher than businesses who have fewer citations. The bottom line is that citations are in fact an important factor in the ranking algorithms of the major search engines.