Simply stated, meta-data are the information about your ebook. It tells your ebook's cover to appear as a thumbnail. It allows your ebook's buyer to sort by author, etc. on his/her ereader. It also tells the buyer your genre, ISBN, publication date, etc. Most important of all it must be inside your ebook.
Author Guido Henkel blogged about his take on the purpose of the meta-data for your ebook at Meta-data… what are they good for?
If you're interested in how to change meta-data using Calibre (You do know about Calibre, right?), watch the video tutorial How to Edit Ebook Metadata in Calibre .