An internationalized domain name (IDN) is an Internet domain name that (potentially) contains non-ASCII characters. Such domain names could contain letters with diacritics, as required by many European languages, or characters from non-Latin scripts such as Arabic or Chinese. However, the standard for domain names does not allow such characters, and much work has gone into finding a way around this, either by changing the standard, or by agreeing on a way to convert internationalized domain names into standard ASCII domain names while preserving the stability of the domain name system.
IDN has, by the standards of the Internet, a long history; it was originally proposed in 1996 (by M. Duerst) and implemented in 1998 (by T.W.Tan et al). After much debate and many competing proposals, a system called Internationalizing Domain Names in Applications (IDNA) was adopted as the chosen standard, and is currently, as of 2005, in the process of being rolled out.
In IDNA, the term internationalized domain name means specifically any domain name consisting only of labels to which the IDNA ToASCII algorithm can be successfully applied.
Source: Wikipedia 
I didn’t even know that existed till one of my users emailed me about it. Cool stuff here man.