PBKFD2 Stands for "
Password
Based
Key
Derivation
Function (the second one).
The idea is that you take a string of any length (the password) and a salt (if you want) and generate a standard length key. The standard for PBKFD2 can be found here:
http://www.ietf.org/rfc/rfc2898.txt. As for the iterations; inside the PBKFD2 it performs a hash against your data. It can then, if you desire, hash the hash. That's an "additional iteration". The more iterations you do, the further from the key your password becomes, but the more number crunching you have to do.
Does that help?