On a practical level for beginners, it means:
Dont' buffer STDOUT.
Normally when your program outputs data, it waits
for 2k worth of data to accumulate, before printing.
When you set $|=1;  the program will output any data
immediately, without buffering. This is very useful in cgi. 

For a little example of what this means in a real program:

#!/usr/bin/perl
#without a newline, it won't print
#until the buffer is 2k

#$|=1;  # try it with and without this line :-)

while (1){
print 'aaaaaa';
select(undef,undef,undef,.03);
}
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