The questions in the title
I'm talking about when people say - "this guitar has great action" or - "I know how I like my set up" or "my mate gave my guitar a set up"
What does it mean?
Cheers
This is my rifle, this is my gun; this is for fighting, this is for fun!
Action is the height of the strings above the frets. It's usually measured at the 12th fret. Lower is better, until buzzing occurs.
More terms you'll hear:
Neck Relief: The amount of curve in the neck. Fret at the first fret and around the 14th. The small space between the portion of string between your fingers and the tops of the frets is where it's measured. It's adjusted with the truss rod.
Pickup Height: This one's simple. It's the distance of the pickups from the strings.
Intonation: Making sure the bridge end of the string is where is should be. It should be roughly the same distance from the 12th fret as the nut is.
A set up is just the word for having all this set properly, and usually a string change too.