Kerning refers to the space between characters (letters, numbers, etc.) as well as the process of adjusting that space to make words more legible or pleasing to the eye. Most fonts require at least some kerning to avoid awkward gaps or spaces. These gaps are more apparent in larger text such as headlines.
Kerning is more art than science. A designer usually adjusts a word’s kerning by sight rather than specific measurements. Bad kerning is usually a designer’s biggest pet peeve.
See kerning in action in my Kerning Design Demo: