Earlier quoted context omitted.
Yggdrasil builds a multi-hop IPv6 overlay network using peer-to-peer connections. You can string a whole bunch of nodes together using whatever means (cables, wireless or TCP peerings over the internet or any other network) and you get a full-mesh network where everyone can reach everyone else. It's designed to be as minimal-configuration as possible and scalable in a way that many other mesh routing protocols aren't…
So it's a kind of VPN?
It's closer to bittorent than a VPN. It has end-to-end encryption and each node (the app that runs on your PC) distributes routes to each other (similar to how routing works on the Internet between large networks). It appears to be a flat spanning-tree style network.
They mention that it is using similar code and ideas as the cjdns project.