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Processor Instruction Sets
The job of all processors is to execute instructions, which are the commands that make up the machine language that the processor understands. Most software programs are written in higher-level languages, but they must be translated into the processor's machine language in order for the computer to run (execute) them. This is called compiling the program to machine language. See here for more on the basics of software and machine language.
Taken collectively, all of the various instructions that the processor can execute are called its instruction set. The instruction set determines what sort of software can run on the processor; in order for two processors to be compatible, they must (among other things) be able to execute the same instructions. The number and type of instructions supported by the processor dictates the requirements for all software that uses it, and has a significant impact on performance as well.