Basically, magnets are like URL's, but they trigger a gnutella download rather than loading a web page. Right click a file in your library and it will bring up the option to create a magnet link which you can email to friends, who can then download the file.
Here are some links for more info and samples.
http://www.limewire.com/english/content/glossary.shtml This glossary is old, but does help with some of the vocab.('magnet' and 'URI' aren't currently listed)
http://gnufu.net/ is very handy (thanks to arne for creating and maintaining it)
http://magnet-uri.sourceforge.net/ is much more technical.

http://www.magnetmix.com/index.shtml lists some magnets and can also be turned on from your LW View Menu.

http://www.magnetdb.com/index.php this is THE site, thanks to Gregorio. Check out the FAQ, or ask a question there.

Cheers