When you visit a URL within your Drupal site, the part of the URL after your base site address is known as the path. When you visit a path in your Drupal site, Drupal figures out what information should be sent to your browser, via one or more database queries. Generally, Drupal allows each module you have enabled on your site to define paths that the module will be responsible for, and when you choose to visit a particular path, Drupal asks the module what should be displayed on the page.
For instance, this site (drupal.org) is (of course) built with Drupal. The page you are now viewing is http://drupal.org/node/19828, whose path is "node/19828". The module that is responsible for this path is the core Node module, so when you visit this page, Drupal lets the Node module determine what to display.
To determine the path to a particular page on your site, for purposes of creating a link, go to the page you want to link to and look at the URL in the address bar. By default the URL, after the base address of your site, will begin with '?q='. When 'Clean URLs' are enabled you will see a directory structure in the URL. The "path" for use in a menu item is the part of the URL after the site's base address and without the "?q=".