UDP
Usergram Data Protocol
UDP is the unreliable cousin of TCP on TCP/IP networks.
UDP Summary
UDP does not guarantee delivery, or reliability, and because of this it is ideal for services such as video streaming. For a service such as video streaming, reliability and guarantee of delivery are not the highest concern; instead it is only important that the video is transmitted from the server to all the clients, without a care for 'expired' packets. What seperates the two protocols is that TCP requires the client to inform the server that it received all of the packets sent, and also to re-request packets that arrived corrupted or did not arrive at all. As a result of this there is additional overhead for TCP when comparing TCP to UDP, and it is this lack of additional overhead (combined with other factors) that makes UDP superior to TCP in streaming scenarios.
DNS
UDP also drives DNS communication, translating Internet addresses such as http://www.secondlife.com into IP addresses computers understand, such as http://66.150.244.168/ .
Second Life and UDP
With the exception of textures, Linden Lab's Second Life uses UDP as it's primary mode of communication with it's servers. Little information exists about Second Life's usage of UDP, hopefully with more information soon to come.
For more information on TCP and UDP, please see their respective definition documents. (Note that these protocols use the services provided by the IP layer underneath them, be it IPv4 or IPv6.)