This term refers to the size of an image, usually in reference to a photo from a digital camera or camera phone.
Megapixel means one million pixels. The resolution of digital cameras and camera phones is often measured in megapixels. For example, a two-megapixel camera can produce images with two million total pixels.
Since pixels are usually square and form a grid, a 1-megapixel camera will produce an image roughly 1200 pixels wide by 900 pixels high.
By comparison, a VGA image (640 x 480 pixels) would be only 0.3 megapixel.
Megapixel images (1 megapixel or greater) are often larger than the resolution of a phone display, so a megapixel camera will not make much difference compared to a sub-megapixel camera for phone-only applications such as MMS.
Rather, megapixel cameras are useful for taking photos suitable for viewing on a PC and/or printing.
Photos with more megapixels are larger in file size, and so can take much longer, and cost more, to send wirelessly.
Most cameras and camera phones have an option to take photos at lower resolution (smaller), if desired. This is useful for taking photos that will only be sent via MMS and not transferred to a PC or printed.