They've already explained the whole thing on their website a lot better than I ever could:
What is NaNoWriMo?National Novel Writing Month is a fun, seat-of-your-pants approach to novel writing. Participants begin writing on November 1. The goal is to write a 50,000 word, (approximately 175 page) novel by 11:59:59, November 30.
Valuing enthusiasm and perseverance over painstaking craft, NaNoWriMo is a novel-writing program for everyone who has thought fleetingly about writing a novel but has been scared away by the time and effort involved.
Because of the limited writing window, the ONLY thing that matters in NaNoWriMo is output. It’s all about quantity, not quality. This approach forces you to lower your expectations, take risks, and write on the fly.
Make no mistake: You will be writing a lot of crap. And that’s a good thing. By forcing yourself to write so intensely, you are giving yourself permission to make mistakes. To forgo the endless tweaking and editing and just create. To build without tearing down.
As you spend November writing, you can draw comfort from the fact that, all around the world, other National Novel Writing Month participants are going through the same joys and sorrows of producing the Great Frantic Novel. Wrimos meet throughout the month to offer encouragement, commiseration, and—when the thing is done—the kind of raucous celebrations that tend to frighten animals and small children.
In 2010, we had over 200,000 participants. More than 30,000 of them crossed the 50K finish line by the midnight deadline, entering into the annals of NaNoWriMo superstardom forever. They started the month as auto mechanics, out-of-work actors, and middle school English teachers. They walked away novelists.
So, to recap:
What: Writing one 50,000-word novel from scratch in a month’s time.
Who: You! We can’t do this unless we have some other people trying it as well. Let’s write laughably awful yet lengthy prose together.
Why: The reasons are endless! To actively participate in one of our era’s most enchanting art forms! To give yourself permission to write without obsessing over quality. To be able to make obscure references to passages from our novels at parties. To stop being one of those people who say, “I’ve always wanted to write a novel,” and become one of those people who can say, “Oh, a novel? It’s such a funny story–I’ve written three.”
When: You can sign up anytime to add your name to the roster and browse the forums. Writing begins 12:00:01 November 1. To be added to the official list of winners, you must reach the 50,000-word mark by November 30 at 11:59:59. Once your novel has been verified by our web-based team of robotic word counters, the partying begins.
This is a completely free, fun way to challenge yourself. If you find this intriguing at all you should definitely check out the website, there's a bunch of forums, videos, pep talks etc. You can also check out the calender for your region to see where the write-ins are if you want to get together with other wrimos.
Let me know if you decide to take on the challenge, I'd love to hear how your month goes.