Martial law is basically an instance in which the military installs stricter than usual restrictions on the public in the face of crisis.

For a more detailed description, wikipedia does a good job of breaking it down:

Martial law is the system of rules that takes effect when the military takes control of the normal administration of justice.

In many countries martial law imposes particular rules, one of which is curfew. Often, under this system, the administration of justice is left to a military tribunal, called a court-martial. The suspension of the writ of habeas corpus is likely to occur.

Martial law can vary based on the country and crises, for example in the United States, martial law is limited by several court decisions that were handed down between the American Civil War and World War II. In 1878, Congress passed the Posse Comitatus Act, which forbids military involvement in domestic law enforcement without congressional approval. On October 1, 2002 United States Northern Command was established to provide command and control of Department of Defense homeland defense efforts and to coordinate defense support of civil authorities.

Interestingly enough, most recently (as of 03/23/2009), the city of Schenectady, New York is considering disbanding its police force and declaring martial law until they can form a new police force. The mayor does not have the power to declare martial law; this can only be done by Governor David Paterson.

(That is according to this report (http://capitalnews9.com/content/top_stories/135816/schenectady-mayor-considers-options--martial-law-over-police-woes/?RegionCookie=12)