Gapless playback is simply the ability to playback several tracks with no pause between them. It's very useful when listening to certain types of music especially classical, classic rock, jam bands and electronic music. Any album where each track naturally blends into the next is simply ruined by the gap inserted by iTunes and the iPod.
The only real workaround is to rip the entire CD as a single track (insert a CD, select all the tracks, then select Advanced > Join CD Tracks.) This will give you a single (gapless) track of the entire disc, but the tradeoff is that you won't get the individual track names or easily be able to jump between them.
This oversight really sunk in when I was rocking The Crystal Method's new album, Community Service II in my car from my iPod nano. It's a mixed album that's broken into individual tracks and the vibe is completely ruined during the artificial pauses the iPod inserts between songs. If the lack of gapless playback on the iPod bothers you too, tell Apple about it and sign the online petition.