Greg put it into a very simple definition. Just in case, here is Greg's answer stretched a little more...
A 'mod' referring to 'modification' is anything you do to alter the original XBOX. Most people use the term 'mod' or 'modded' when talking about installing or already having a modchip in their system. But, a modification can also be replacing the outer shell or casing, painting the case, swapping hard drives, adding lights and LED's to the system, replacing the jewel, adding extra components such as an LCD screen the displays customizable information, and many other things possible when owning a modchip.