FSB stands for Front Side Bus and the speed of the Front Side Bus determines, along with other things, how quickly your computer can shuffle data around the system. The thing it most directly affects is how fast data can get from the CPU to RAM and back again and well as from the CPU to the GPU (Graphics processing Unit).
Most people who buy computers believe the most important thing is how fast the CPU is (which is partially true). Others understand that having a lot of RAM is important and some others even understand that graphics memory plays a part in performance (particularly for games). Very few people really understand why the bus speed is important too or even what it means. However, after the raw CPU speed and performance, FSB speed, data rates and latency are the next biggest factors.
Many websites, and indeed Apple themselves, claim that the Core2Duo is up to 35% or even 40% faster than the CoreDuo. In synthetic benchmarks, that test only the CPU, this might be true. In real life, the increase in performance is more like 10% and the reason for this is that the Core2Duo on the latest machines is limited by the FSB, which runs at 667mhz. The fact that data cannot travel any quicker once processed on a C2D machine compared to a CoreDuo machine means that in real life tasks, a user would barely notice the difference.
The reason is that the RAM and GFX cards are not getting the processed data any quicker than they would on a CoreDuo and although this is over simplifying things a little, this would be like having a 4 litre V8 engine in one car and a 1.2 litre flat four in another, but with the same gear ratio.
Some desktop PCs are already getting the Core2Duo with the 800mhz Motherboards and faster RAM and these machines show a much bigger advantage in real world applications over the CoreDuo/667mhz FSB machines.
Wiki has a decent page about it
http://en.wikipedia.org/wiki/Front_side_bus
Having said that, the current MacBooks which have a 667mhz FSB and PC5200 RAM are exceptionally fast. Also, FSB speed increases are much rarer than CPU speed increases.
One final thing to understand is ratios. Everything on the BUS must run as a multiple of the Front Side Bus. In the old days of the Pentium, the FSB was typically 66mhz. PCI ran at 33MHZ or 0.5x the FSB. AGP ran at 66mhz (or 1x the FSB). The CPU typically runs at 3, 4 or 5x the FSB. The CoreDuos run at 1.83mhz and 2.0ghz on the MacBooks (2.5x and 3x).