The Schengen treaty is an agreement between participating countries in Europe, that allows people and vechicles to cross borders without any checks. The participating countries do not have border controls with each other, and have a commoin visa policy. This makes travelling between the countries, regardless of your means of transport, very easy.
Non Schengen States
There are several states which do not participate because of various reasons. Mainly because they are islands, and need to maintain border control.
Schengen is a small town on the border of Luxembourg where the treaty was signed.