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It means the core of OSX has crashed. It is the equivalent of getting a blue screen of death on a windows pc. Instead in unix-based systems they call it kernel panics.
 
I hate kernel panics because they're not as "sudden" as blue screens. In windows, if theres a crash, it's blue screen instantly. With a mac, the gray screen drapes down ever so slowly and while it's busy taking its sweet time covering the screen you're thinking "damn, what the heck!". truly a bad feeling. I hope you never see another...
 
Lately I've been getting a blue screen every now and then...everything will stop, the whole screen goes blue, then it goes right back to normal.

No idea what's causing it =/
 
Are you running Boot Camp? I am theorizing that Boot Camp hosed my OSX partition: after a clean format, my kernel panics (thus far) have ceased.
 
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