It means Illustrator writes two files into the AI file 'package': an AI file and a PDF. Many external applications can only see the PDF; for example it enables you to preview the file in your OS, or see it linked in InDesign. If the AI file is damaged in some way, occasionally the PDF part will still be intact and to some degree recoverable (but perhaps not exactly as you constructed it).
Thanks for reaching out. I agree with Doug. With Create PDF Compatible File turned on, Adobe Illustrator saves a PDF-compatible file inside the native Adobe Illustrator file. Adobe Acrobat—and similar PDF readers—understand this file. The PDF compatible file is also editable as Doug mentioned already. You may read this article for more information about this. Hope it helps.