The Meterpreter is an advanced multi-function payload that can be dynamically extended at run-time. In normal terms, this means that it provides you with a basic shell and allows you to add new features to it as needed. Please refer to the Meterpreter documentation for an in-depth description of how it works and what you can do with it. The Meterpreter manual can be found in the "docs" subdirectory of the Framework as well as online at:
http://metasploit.com/projects/Framework/docs/meterpreter.pdf