If you enable this feature you can download apps from “unknown sources” such as websites, other Market apps or transfer them between Android phones and be able to install them.
There is a bit of a risk because some of these apps are not Google Market “approved” so if you don’t know what an app does or who it is made by, there is a risk. Use your best judgement rather than impulse downloads and installations – Google check reviews on apps beforehand.
How to enable third-party app installation on your Android phone:
1. Go to Settings
2. Touch Applications
3. Touch Unknown Sources (so the tick is white) – this enables the feature
NOTE: This method is for Android 1.6 but may be the same/similar on newer Android versions.