In short, it’s a system to create characters similar as they are in Role-playing games (RPGs) with levels, skill points and more.
You might think it doesn’t make sense to give contributors “points” for non-gaming activities but you would be wrong. Most communities have created ways to reward their members this way. Look no further than my favourite stackoverflow.com. It also uses badge and skill point system for various actions on the website. In one of earliest blog posts about how stackoverflow will work, Jeff Atwood shared his vision: three levels of badges (bronze, silver, gold). Each level with unique badges tailored to the purpose of stackoverflow.
I guess Fedora RPG will go a bit further in this regard. I would love to know how it will all turn out and how the levels will work. Let the games begin!