Vector graphics are a method of communicating a series of shapes, coordinates, and paths to their rendering context. They are a set of instructions for how an image should be drawn. When that image is scaled up or down, the set of points and lines that the image represents are redrawn to scale. A smooth curve between two points will be redrawn just as smoothly at any size—similar to the way a CSS-defined border on an HTML element is redrawn as that element is scaled in the viewport.
Scalable Vector Graphics (SVG) is an XML-based markup language developed by the W3C. It is a vector image format designed for the modern web.
Even beyond the obvious appeal for designers and developers, SVG is also an incredibly powerful format in terms of the end user experience. The descriptive information contained within an SVG source is often highly compact compared to raster image formats' more prescriptive pixel-grid-based information, in the case of simple shapes—to oversimplify somewhat, the difference between telling the browser "draw a 1px red line between 1x1 and 1x5" and "1x1 is a red pixel. 1x2 is a red pixel. 1x3 is a red pixel. 1x4 is a red pixel. 1x5 is a red pixel." The flip side is that the descriptive nature of SVG requires more interpretation—more "thinking"—from the browser. For this reason, complex SVGs can be more taxing to render. In the same vein, a highly complex image could mean a verbose set of instructions, and a large transfer size.
It may take a little trial and error before you're able to instantly recognize an image source candidate as better served by SVG rather than a conventional raster format. There are a few guidelines, though: interface elements like icons are almost always well served by SVG. Artwork with sharp lines, solid colors, and clearly-defined shapes will likely be a strong candidate for SVG.
SVG is a huge topic: an entire markup language made to coexist alongside HTML, with unique styling options and capabilities. For a more detailed introduction to SVG see the MDN SVG tutorial.