From BlenderWiki

Volume

The volume shader is currently under independent development.

When the surface shader does not reflect or absorb light, it enters into the volume. If no volume shader is specified, it will pass straight through to the other side of the mesh.

If it is defined, a volumes shader describes the light interaction as it passes through the volume of the mesh. Light may be scattered, absorbed, or emitted at any point in the volume.

A material may have both a surface and a volume shader, or only one of either. Using both may be useful for materials such as glass, water or ice, where you want some of the light to be absorbed as it passes through the surface, combined with e.g. a glass or glossy shader at the surface.