A barre chord takes its name from the role of the 1st finger of your left hand. This finger acts as a "bar" across the fingerboard, depressing all six strings and replacing the nut (the ivory piece at the top of the neck). By using your first finger as a "bar," you can move many of the open chords you have learned up and down on the fingerboard.

More explanation: http://www.guitarsite.com/chords.htm