A file that stores configuration setttings which you will find in the root folder of Joomla installation. All the parameters under the Site, System and Server tabs in the Global Configuration are stored as values in this file. This file is set up automatically by the software installation process and thus many of the parameters appearing in the Global Configuration screens are best left as their initial settings.

The database table prefix is a string (a few characters long) prepended to the name of Joomla!'s tables. Using a prefix enables you to run multiple installations of Joomla! using a single database.

The database table prefix can be set during installation. Changing it later is possible, but requires access to the database through a non-Joomla medium or a Joomla Extension such as Akeeba Admin Tools and will cause some downtime.

Extension developers need to use the string #__ to represent the prefix. This will be replaced by the real prefix during runtime by Joomla.

Reference: http://docs.joomla.org/Glossary