In previous versions of SQL Server, if there was a need to access something outside of SQL Server the service account under which the SQL Server service was running was the credential that was used. By specifying a credential you can say if user X runs a stored procedure or query which access resource Y, use credential Z as the account to access it.
@Remus Rusanu
You are confusing the idea of a SQL Server login, which is created using CREATE LOGIN, with a different concept called a credential, created with CREATE CREDENTIAL. See http://www.replicationanswers.com/Security2005.asp for more details.