Conversion tracking allows you to isolate visitors who reach certain pages in your site. You are basically saying 'if a visitor reaches this particular page, let me know and make this visit stand out in the stats'. You can also opt to receive an automated email each time a conversion of a certain type is detected on your site (see 'conversion emails' in the 'Stats by Email' section to set up).
You can track up to 5 different types of events. For example: you could set a conversion of type 1 when a visitor uses your contact us form, a conversion of type 2 when a visitor signs-up for your newsletter and finally a conversion of type 3 if the visitor reaches the sale confirmation page.
To define your conversions, use the 'Conversions Monitoring' > 'Define conversions' section of the Settings Panel which lists all the pages of your site. You can then set the conversion type you wish to associate to a given page to the right of that page