Transcoding is a process that is often used of many types of digital data. Literally, it means taking one code and translating it to another code.
Usually transcoding means that you take a high bitrate / high quality data, decode it, downsample / shrink / otherwise mess with it to reduce its size, and then re-encode it. (The result is, as you may imagine, often uglier than original - but if the receiver makes the thing sound or look worse anyway, it's often practical.)
It can also be used to mean the generic process of "tailoring" digital information to specific type of receiver. (For example, there can be a transcoding proxy that converts HTML pages optimized for desktop use to PDA-friendly format.)