VPN is an acronym for virtual private network. A Virtual Private Network (VPN) is a network that uses publically available physical wires such as the internet for connectivity. Virtual private networking uses encryption to provide a virtually private network across a public network. VPN provides remote connectivity to offices or individual users to main offices or provides a means to link offices together through the VPN.
Typically VPN will encrypt network packets into a "tunnel". This means that each endpoint of the VPN will enclose the normal network packet including source and destination IP address and port number into it's own packet which it uses to send the enclosed data to the other endpoint (or node) in the VPN network.