It's a digital audio cable that uses an optical link: a plastic fiberoptic cable. You can shine a light at one end and see it at the other.
This optical cable system commonly goes by the name of TOSLink (Toshiba Optical Link). TOSLink jacks are found on TVs, audio/video gear, players and some set-top boxes.
The alternative digital audio connection is called SP-DIF, and uses ordinary coax video cable to carry it.
SP-DIF (coax) and TOSLink (optical) work exactly the same, and often both appear on A/V gear. This is owning to the fact that SP-DIF and TOSLink use the same encoding, called AES/EBU or AES3. AES3 defines a digital payload format that is flexible enough to carry a wide range of audio standards, including uncompressed stereo and popular compressed multichannel movie audio formats like Dolby AC3 and DTS.
For DVD/Blu-Ray players and set-top boxes, TOSLink and SP-DIF have been largely supplanted by HDMI, which merges audio with video in a multiplexed format so a separate digital path isn't needed for audio.
TVs still provide TOSLink or SP-DIF to connect to home theater systems. This comes up when the TV is the source of the audio, such as from an over-the-air tuner or an app running on the set, but has multichannel audio that needs to be sent to a sound bar or home theater amplifier.
HDMI provides an alternative, called Audio Return Channel or ARC, that does the same thing as TOSLink/SP-DIF. However, ARC isn't universally supported.