Thin provisioned virtual disk is a new feature of vSphere. Thin provisioning means the virtual machine operating systems has more disk space available than actually in use on the physical storage. For example a 40 GB volume inside Windows Server, which has only 10 GB of actual data, also consumes 10 GB on the storage level. This saves enormous amounts of data and thus money.
Thin provisioning can be done on the vSphere level, it can also be done on the storage level, if the storage support it. Even both can be done at the same time.
VMware published a white paper with details on performance of thin versus thick provisioned virtual disk. The result is that there is hardly any performance difference!
There is a warning however: make sure the capacity of the datastore is closely monitored to prevent running out of diskspace.