You are most likely referring to a VLAN. A virtual LAN is a collection of machines and devices that are connected as though they were on their own network with the same broadcast domain. VLAN's are used to logically separate out data. The ports in a switch are often assigned to a particular VLAN #, or the port is configured in a trunk which carries all of the VLAN's. As traffic is passed through that port, it's "tagged" with the VLAN #.
So, let's say you have a 10 port switch. Let's say that you assign ports 1,2,3,4 to VLAN #1. And you assign ports 5,6,7.8 to VLAN #2. You could have an IP range of 192.168.1.0/24 for VLAN #1 and a range of 192.168.2.0/24 for VLAN #2. So, if you plugged in a machine to port 1 with an IP of 192.168.1.1 and a machine into port 5 with an IP address of 192.168.2.1, technically these 2 machines are on 2 different networks and thus you would need need a device (router) to route traffic between VLAN #1 or VLAN #2. By default, the machines plugged into 1,2,3,4 are on the same network and can talk to each other, and the machines in 5,6,7,8 are on a different network and can talk to one another.
Segregating traffic with VLAN's is also used as a layer of security. Since machines in VLAN 1 cannot sniff traffic from machines in VLAN 2 (without a trunk port), the data can remain somewhat isolated via the physical cabling.
