A Library is a file that you can put objects or groups of objects into that you can copy to another document. To create one, in the menus, select File -> New -> Library.
An example of a situation that would benefit from having a library is when you use the same folio over and over again. Rather than copying and pasting the folio from a previous document, put it in a library. Just select the whole thing, and drag it onto the library palette. Then, on your new document, open the library and drag the group of objects right onto your page. Poof. Done.