The FreeDB is an online database which maps a calculated ID for a CD in your computer to the relevant artist, album, track, etc. It is a free content database that is supported by its community of users. Anyone with a client that speaks the CDDB protocol (most ripper/encoders) can add information to the database.
This system is in contrast to Gracenote's CDDB which was a community created database they later claimed ownership over. The FreeDB project was started in response to this debacle using an older published version of the original CDDB database.
For more information see the FreeDB FAQ