IP stands for "Internet Protocol". Each computer, Smartphone, phone, e.t.c (Even your wireless printer has one!), has an IP address. It is like a sign to your computer (Or, to be exact, a sign to your computer server). I have been recently trying to create a game server for Minecraft, and in order for other people to join, they need the IP address of the server (Which is, ironically, the same IP as your computer). To give you an example of what an IP looks like, here is mine: 220.127.116.11. There is an option to change the IP of your computer, otherwise the router you connect to will pick an IP for you. To see your IP address, click here: www.whatismyip.com
There are different types of IPs. There is Dynamic, and Static. A static IP address stays the same (unless you change it), and a Dynamic IP address changes every time you connect to the internet. Usually, for another computer to connect directly to your computer or server, it needs the IP adress.