Psychoacoustics is the field of study in the way humans hear and percieve sound in the brain. Hence
psych - human mind, and
acoustics - audio representation.
Useful for lossy audio compression codecs, in that we can build a psychoacoustic model of what the person hears and throw away the audio frequencies which the user is unlikely to hear, depending on some quality factor or limiting bitrate. Nearly all MP3 encoders use some form of psychoacoustic model to reduce file size.