It reffers to the accuracy of the pitch of the notes you will press on the fretboard...
I also saw in a guitar manual that it reffers to the correct string length wich will affect the pitch of the notes on the guitar...

Hope this help
when the guitar is intonated correctly when you play the 12 fret its the exact same note as the open string(on the same string)
Intonation is basically tuning across the fretboard. If a guitar has very good intonation, almost every fret will ring out in tune, but poor intonation will mean some notes are out of tune, even if the open string is in tune.

No guitar can have perfect intonation without very expensive modification (True Temperament system) but you can get it very close with a compensated nut like the Earvana.
And philipk wrote the way of checking your intonation

If you play the harmonic on the 12 fret it has to be the same intonation as the open string or pressed 12 fret...
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many lower end and beginner guitars will never be in tune all the way down the fretboard no matter how much you tune and change the bridge intonation (my first guitar couldn't). its not as big a deal when you are JUST starting, but as your ears develop and you find you can tell the difference more it will drive you crazy. thats exactly why i got my new guitar, and its a dream even if i'm using the floyd.
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