Usability is about how well your site works when the average user is using it. Whether it is easy to use, helpful and intuitive. If someone arrives at your site and can't use it then there's no point having the site there at all.
There are a number of aspects to Usability and one the most basic is how fast a new user can figure out how to use the site. Is the navigation easy to understand and follow? When the user knows how to use the site, is it efficient and fluid to use? Does the site organise it's content in a sensible and readable fashion? Does the site make it clear which site it is, what it is about and how to find relevant information?
Using a website should be an enjoyable experience for a visitor, which makes them want to stay at the site and come back again later. It should not be confusing or frustrating. Provide feedback to the visitor on every aspect of using the site, from using alt tags to show image information while it is loading to clearly displaying where the visitor is in the site structure.
Accessibility for the disabled is an important, and sadly neglected, issue for Usability. Good webdesign should present no problem to those using screen readers or other aids. This is becoming more relevant with the ageing population who may have difficulty with using conventional screens, and with more sight impaired people having access to screen readers and other technologies.
One of the most read and referred to resources on Usability is Steve Krug's book "Don't Make Me Think", and the title really sums up what a designer should bear in mind when creating for Usability.