(Not to be confused with PS2!)
"PS/2" is used to describe the now-"traditional" PC mouse and keyboard interface (found first in IBM PS/2 computers, no doubt). Easily recognised by the plug and connector - round, 8 mm diameter, 6 pins.
One of the major headaches now is that PS/2 mice and keyboards are generally not hotpluggable (yerricde says the original PS/2 did this, but as with everything, clones seem to often screw it up). If you want to be absolutely sure that nothing fries when you switch PS/2 mouse or keyboard to another, you need to power the computer down! If you're really lucky, unplugging and putting thing back may work. May. It's definitely not guaranteed because hotplug behavior hasn't been specified in standards; For example, on my old machine, it worked once, but if I unplug a PS/2 mouse when my PIII-600 is running, the whole machine freezes. Or something.
Personally, I have only had bad memories when moving from PS/2 to USB - mostly due to the fact that USB support isn't always "out of the box" and this hot(un)pluggability is pain in the neck, especially if you aren't aware of it... It's as if this ancient horror of cosmic proportions would desperately want to possess my soul. Well, I now have USB mouse and keyboard, and probably will not change back...
Undoubtedly PS/2 interface will remain the last "crappy legacy stuff" interface for PCs; While USB is, by all means, a wonderful bus for peripheral attaching, PS/2 always reminds me why non-PC users think that PC hardware sucks.