Multi-zone, Multi-source refers to the distribution of audio/video throughout the house. With a multi zone multi source system you are able to have much more control over your distributed audio/video system. Let me explain. In a distributed audio/video system you have sources. These sources can consist of many different devices, for this explanation we will just use three: AM/FM Radio, CD player, and iPod, and we will contain our discussion to audio. In a simple system you could have many different rooms with volume controls and maybe some Infrared, (remote,) control of your sources. Here in lies a small problem. Only one source can be played at a time, so everybody has to listen to the same source that is being played and if someone decides to change sources, everybody has to change sources. If you have teenagers this could be a much bigger problem, but lets not get into that.
Now if we turn that system into a multi zone multi source system, we can now have more then one source playing at a time. Not only that but each source can be played in different areas of the house. So you could be listening to a CD, while someone else is listening to the radio, and someone else is listening to their iPod. Best of all everybody has their own control over changing sources and volume.