This is a bacterial defense system in which a bacterium is able to destroy the DNA of an invading bacteriophage (a virus which infects bacteria) while at the same time preventing the destruction of its own DNA. The phage DNA is cleaved by a restriction enzyme made by the bacterium; the bacterial DNA is modified (usually with methylation) so that the enzyme won't destroy it.
The information in this writeup was taken from the science dictionary at http://biotech.icmb.utexas.edu/; I oversaw the development of the dictionary (the website was mothballed in 1998) and I believe I wrote the entry this is based on.