RSS stands for "Really Simple Syndication", and it is the future of online publishing.
It uses XML to create what amounts to a special type of file or web page. XML (extensible markup language) is an extremely flexible language, similar to HTML, but allowing the addition of custom tags. Tags, simply put, allow the author to "tag" information in the file as being a certain type of information. There could be tags for Title, Name, URL, Item Description, Contact email address, etc... Being able to create any tag necessary to describe the information in the file is what makes XML so powerful.
RSS feeds can be updated easily, and are usually updated automatically by software, in order to allow easy publishing of frequently updated information. These could be blogs, news headlines, podcasts, classified ads, or just about anything. The great thing about RSS is that you can use client software to automatically download content from an RSS feed.
I subscribe to a number of podcasts (note, podcasts do not require an iPod). I enter the URL of a RSS feed into my podcast downloader (usually called an aggregator) in order to subscribe to a certain feed. It then automatically checks for new episodes and downloads them for me so that I can put them on my MP3 player. Other people use RSS readers to read news headlines, or subscribe to friends blogs to get the updates automatically.
I hope this helps. I'm trying to explain it without geeking out too much. Wikipedia has some more info:
http://en.wikipedia.org/wiki/RSS_(file_format)
Unless Craigslist offers an RSS feed from their site, setting one up as a 3rd party will be VERY difficult (unless you're a programmer). You will need to write a program that pretends to be a web browser, goes to craigslist, downloads the listings, parses (splits up) the HTML, figures out which entries are new, and then add those to your RSS feed. It is entirely possible that some web-head has already done this though, and if they make it available, could be used to accomplish this task pretty easily.
-SF