SIP stands for Session Initiation Protocol. It is a Voice-Over-IP (VoIP) protocol for communication to be created, setup, modified or terminated between 2 or more participants. It can, among other things, be used to create a two or more party telephone call using the Internet.
Connections can be to a single phone or between systems or to the Public Switched Telephone Network.
The voice channel that is set up is referred to as a SIP trunk.
SIP can also be used for Video over IP, Instant Messaging and many other cool IP applications. SIP trunking can be used instead of traditional telephone lines or even more involved VoIP Protocols.
Because of its reduced monthly costs and feature set advantages, SIP trunking is being adopted very quickly. There were less than a million SIP trunks in 2006. They are expected to top 14 million in the next 2 years. (Frost & Sullivan)