Diffraction is an optical effect which limits the total resolution of your photography — no matter how many megapixels your camera may have. It happens because light begins to disperse or "diffract" when passing through a small opening (such as your camera's aperture). This effect is normally negligible, since smaller apertures often improve sharpness by minimizing lens aberrations. However, for sufficiently small apertures, this strategy becomes counterproductive — at which point your camera is said to have become diffraction limited. Knowing this limit can help maximize detail, and avoid an unnecessarily long exposure or high ISO speed.