What does this mean exactly?

Your activities are recorded in order to better understand how you are using your system. Using this extensive knowledge, the performance of the system can be improved considerably.

For example, knowing which application you launcher when you start your computer would help the system to pre-launch the application in the future, etc.

Which activities are being recorded?

Activities like viewing and editing audio, video, documents, notes, images, conversations in Empathy, emails, music played are all recorded. Not just the activity itself, but how you carried out the activity are also recorded.

In the case of listening to music, how you played the song will be recorded including whether you launched it from Unity dash, Nautilus or from Rhythmbox, etc.

I would believe the Zeitgeist team is working on adding more plugins for recording more activities like the commands used in terminal, websites visited, etc.

Where can I find the recorded data?

Your activity data is stored in ~/.local/share/zeitgeist.

You can use gnome-activity-journal to view the recorded activities in a human friendly way.

We have an extensive tag wiki about zeitgeist that explains how Zeitgeist works and how it is useful on the whole among other things.