In tracker music, panning could be easily described as "sound channel positioning". It roots from motion picture industry term "to pan(orate)" (see also panorama).
Panning effects are a relatively new invention. In original protracker modules, the only panning possible was full, stationary left-right - two channels played on left, and two on right. (I forgot the exact order of the channels.) The problem was, the channels were entirely "on" left or on right; no sound that was on left channel was never heard on right. This sounds very nice on speakers (because ears can tell that there's a difference), but on earphones, some Amiga mods sound just freaky because of this unnatural division. (I've been told the new beta of MikMod does wonders to these by realigning .mod panning if so requested - I suggested the feature and they implemented). Of course, some "masters" of .mods made the tracker pieces sound extremely elegant on headphones, too.
In newest versions of ScreamTracker 3 more sophisticated panning was possible, even though the channels were still stationary. This was not supported by the tracker program itself, though. Format did support it, and so did ImpulseTracker, the tracker used to write panning-enabled modules. The channels could be realigned to sit anywhere on left-right axis.
ImpulseTracker format, then, went even further: Panning could be changed, using appropriate effect, on fly. You could move one sound smootly from left to right and back. (A good example of this is in Skaven's tune "The Alchemist".)
In modern game music and sound effects, panning has become even more sophisticated. For example, in audio/video editor Broadcast 2000 it's possible to move sound in not only left-right axis but also on forward-backward axis! With EAX and environmental audio taking steam, I think future tracker formats will eventually support full 3D audio panning.
(I'm not quite aware of FastTracker II's panning capabilities? I think it did support such things, but to what extent?)