LED stands for light emitting diode. You know those little lights on your computer, usually near the hard disk, that flash while the computer is working? Those are LEDs. They work on the principle of electroluminescence, which refers to substances that glow when you apply electricity. LEDs were used in digital watches, but now all digital watches use LCDs because LCD stakes less power.
LEDs are ordinary diodes (the most basic electronic component) that, due to their composition, happen to glow red, green, or amber when energized by a couple of volts. They use less power than incandescent bulbs and last over 100,000 hours.