What exactly is a mod and what can I do with it in new Vegas?
A mod is simply a colloquial term for a user-produced alteration to the game. They range from simple mods that change one thing (example: making stimpaks heal more or less), to huge sprawling overhauls that change almost everything and add new content like quests, locations, weapons, armor, items, etc.
I really don't know what a mod is although I have a foggy idea. i see you can make armour and weapons. Very cool. What about levels? Charectors? Storylines? Enemies?
Yes to all of the above. You can also change the underlying formulas that the game uses - make strength count for more carry weight, or make heads take more damage. Really, there's not a whole lot you *can't* do with the GECK.
Check out newvegasnexus.com for mods. The nexus is pretty much the big TES/Fallout3/NV mod site.