DO = Diffractive Optics, as so many before you have already mentioned.
What this really means is that there is a diffraction grating embedded within the glass: a series of slits creating a grid with width in the order of the wavelength of light. Light hates being constrained in this fashion, so it bends and spreads, trying to fill the space behind the grating. This effect is different for the different wavelengths of light, but as it turns out, that counters most of the optical artifacts from a purely refractive optics, meaning that things like chromatic aberrations and various distortions are next to nonexistant. It also allows a lens containing a diffraction grating to bend light a lot more, eliminating the need for more elements.
Image-quality-wise, however, things are not all good: there is slight softness in parts of their image. I am not sure what causes it, but my guess is waves of like wavelengths following paths through different slits interfering with each other, producing interference minima. Maybe if Canon creates an EF-S DO lens, things aren't going to be nearly as bad, and stooping down the lens will probably also help (I haven't handle one, so I don't know) but as far as I can see the idea is largely abandoned now. Most people on this forum tend to believe that it compromises image quality too much.
It's still a nice idea, though. I hate seeing it go nowhere.