HDMI stands for High Definition Multi-media Interface. To transfer the digital video signal from a source to a TV, the source must convert the signal from digital to analog, this results in some information loss. However, an HDMI connection, can transfer a digital video source signal (such as from a DVD player) digitally, without conversion to analog. This results in a pure transfer of all of video information from the digital video source to a HDMI or DVI (via a connection adapter) equipped TV. In addition, HDMI connectors can transfer both video and audio signals.
For more details on HDMI and how it is implemented, check out my reference article: HDMI Facts.