AAC is short for Advanced Audio Coding and is a lossy audio compression format. Audio files that have been encoded with AAC are generally smaller in size and deliver a higher quality of sound than MP3. Incidentally, it has been touted as the successor to the aging MP3 format. The most well known usage of AAC is with Apple's iTunes Store although other companies use it such as Sony for their PlayStation 3.
The file extensions associated with AAC are: