It means that any last.fm visitor will be able to stream a track on its system (and it seems to have all the majors signed) up to three times. Money-wise they’re profit-sharing the advertising money with the record companies.
At the same time they’re also planning to introduce a subscription service, which I imagine will mean you’ll be able to stream songs more than three times (perfect for you set up that recording to Audacity), get higher quality, no ads etc.
Whilst last.fm isn’t the first person to do a deal like this, it does fit in nicely with the rest of their streaming radio business, and was probably fairly easy to activate as they have all the songs in their system. It seems they’re positioning themselves quite nicely to be the one-stop shop for a ‘music on-demand’ experience. It also means that they’re probably paying their music licensing costs for the first time!
There’s more detail at paidcontent.org.