A permalink (short for permanent link) is a permanent URL to a webpage, contrary to a URL that may change between different accesses to the webpage. For example, in the early days of blogging, the URL of a post would change when the post moved from the front page to the archives.
By default, the permalink of a WordPress post is the blog’s URL appended by ?p=N, where N is the post’s unique number, assigned by WordPress. For example, the default permalink of this page is http://michel.wermelinger.ws/chezmichel/?p=103. The URL for a page is not much better: …/?page_id=N. Having numbers in the URLs is not very informative and doesn’t help search engines. Like almost everything else in WordPress, the permalink structure is configurable. Just go to the Settings > Permalinks administration sub-panel and choose one of the available options or compose your own structure.
I chose the year/month/slug structure, where slug is any sequence of letters you wish. By default, the slug is automatically generated from the post’s or page’s title, by replacing spaces with hyphens and dropping any punctuation. For example, if this post were titled “It’s a nice day!”, the URL would be http://michel.wermelinger.ws/chezmichel/2008/10/its-a-nice-day. When you edit a post or page, the slug is shown directly beneath the post’s or page’s title and you can edit it to make it clearer or shorter. Continuing the example, the slug might be changed to a-nice-day, in order to make it shorter and avoid any confusion between “it’s” and “its”.
The WordPress Codex warns that not using a date-based permalink structure might break some date-dependent features, like the calendar of posts, one of the widgets that can be installed in the side bar. Moreover, starting post permalinks with the date of the post makes it very easy to access the archives: just drop the slug part. For example, all of this month’s entries can be listed by accessing the webpage http://michel.wermelinger.ws/chezmichel/2008/11.
Speaking of sidebar widgets: I should clean up all those default links to WordPress sites.