Latency is the delay inside a computer between the arrival of an input (e.g. playing a string) and the output of the sound.
On a regular consumer soundcard the delay between playing something (line in) and hearing it (line out), playing and processing an instrument throught a computer in real-time is quite impossible.
This is mainly due to the quality of the analog to digital converters on such sound cards and on Windows to the “high” latency of the software drivers like MME and DirectSound. Another factor is that latency escalates with processing -i.e. the latency created by software The more your guitar og MIDI input is processed by software amps and effects. The more complex setups you are using, the more CPU power is requires, the higher the latency.
So to be able to hear what you play, instantly, that is, in order to reduce latency to an inaudible value, you need a high-quality audio card with fast ASIO 2.0 drivers which ensure a latency between 2 and 10 ms.
From Wikipedia - the free encyclopedia