Take a major scale. There are seven different notes in it, so starting from the root note of the scale, number each note (In C major, you'd have C=1, D=2, etc). If you build a chord off of any of those notes, you can give it the number of whichever root note you chose (In C major again, Cmaj would be 1, Dm would be 2, etc). When Roman numerals are used, they indicate the type of the chord -- capital letters are major chords, lowercase letters are minor chords. With a major scale, the chords you build off of each note are going to follow the pattern of major, minor, minor, major, major, minor, diminished or I, ii, iii, IV, V, vi and vii (vii should properly be followed by a degree sign to indicate it's diminished, not minor).
When people are discussing a chord progression, you they might write something like I-vi-IV-V. This means for whatever key the song is in (or whatever key you want), play the Major 1 chord, followed by the Minor 6 chord, then the Major 4 and the Major 5 chords. This system is used because it lets you know the structure of a song independent of the key it's in, making it easy to transpose.