muxing and demuxing have to do with embedded audio within a video. Muxing would be to embed the audio in the video, and demuxing would be removing the audio from the video.
Faintember pegged it well, it's used mainly in DVD authoring and some editing, iDVD requires muxed files and can only deal with stereo and a single audio track, DVD Studio Pro needs de-muxed audio and can handle surround and stereo files and multiple, switchable soundtracks.
Stripping is also an acciptable term for demuxing media when applied to removeing or separating a single element. It used when a single element is taken from media file, ie Video, audio, timeing, etc...