Installation profiles are a combination of core Drupal plus additional contributed modules, themes, and configuration combined into one download. Profiles are like pre-fabricated Drupal sites, built with a specific configuration out of the box. These sites aim to provide features and functions for specific purposes or types of sites without having to combine and configure everything from scratch.
For example, an installation profile for conferences might automatically install and configure modules for advanced user registration & profiles, ticketing, and a list of speakers and sessions.
If there is an installation profile that fits your needs, they can be a great starting point. Once you have installed it, you can still configure and customize your Drupal site as usual.
See http://drupal.org/node/693466 for the d.o. issue. Appears at:
Please fork / edit to improve wording and post links back to the issue queue.