UDP is an initialism for Usergram Data Protocol
UDP is the unreliable cousin of TCP on TCP/IP networks. 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.
Second Life and UDP
Second Life uses UDP the primary mode of communicating small bits of real-time data between viewers and simulators (e.g. keystrokes and object updates). See Protocol for more information about how this works.