When search engines were first created their matching algorithms were simplistic in that they looked for exact matches for a user's search term. However, to remain competitive and to improve the results shown, Google has moved beyond simple matching and now understands synonyms. This means that in some (rare) circumstances you can achieve top rankings for a phrase that isn't an exact match of your content. Here's an example.
A search for new york restaurant returns this set of results:
And a search for nyc restaurant returns this set of results:
Take a look at the red boxes. Notice that in the case of New York Google highlights just exact matches. But in the case of NYC, Google shows us that New York is considered a synonym for NYC. Now I know that highlighted terms in the results don't prove that the actual matching algorithm is behaving a certain way, but I'm guessing that if Google went to the trouble adding this logic to the results that they're also using similar logic in their matching algorithm.
For the most part this knowledge will be hard to apply in practice. After 4 or 5 years of SEO I've only had occasion to use this in my optimization efforts once. And no, I'm not working on any New York restaurant sites.
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This is great because it will allow webmasters to use more natural language in their pages even if they wish to rank high for a certain phrase and hence the content will be better for users.