Z-Order refers to an image's position in the third dimension.
Essentially what shows "on top" of what on your computer screen.
Different applications use Z-Order in different ways. Often, though, you'll have a choice of three zones: Desktop, Normal, On Top. Objects assigned a Desktop Z-Order will behave like desktop icons. Windows will always draw on top of them. Normal Z-Ordering means that whatever was last activated is on top. Like when you have several open windows, and click on one to call it to the top--you have changed the Z-Order. Always On Top Z-Order is pretty self explanatory.
Z-Order can be both simple and complex at times. If you have a question about a specific implementation (like are you using DesktopX or ObjectDock?) please ask!