Texture baking is taking the different texture maps and making one map out of them. For example, if you have a the following maps I did below you can bake them to one map shown above. Bump, specular, transparency, diffuse and light infomation from the scene light rig is all 'baked' together in one map. This is done so when you make video game model's characters, levels the processor doesn't have to calculate it all real time, so you can use the cpu power to do other things. Thats my understanding of it...i guess you can use it in VFX, saves you loading in loads of maps and calculating everything, if the scene is set static with the light setup baked in you can do away with lights all together in the scene to save processing. :)
