Sandboxed Solutions are SharePoint Solution Package files (WSP files) that are limited in what they can do and in the server resources they can use. What they can do is limited using Process Isolation and Code Access Security limited to the SharePoint Site. The resources they can use are limited by process monitoring, logging and log aggregation. Any individual action is limited and the solution is also given a daily limit of resources. This provides for a complete isolation system that ensures code running in a sandboxed solution cannot reach out to access information beyond the scope of the deployment. Specifically, sandboxed solutions will not be able to make updates to the SharePoint object model beyond the scope of the SPSite object. Farm level and web application level changes are allowed only for read operations.
Details :
http://www.sharepointdevwiki.com/display/sp2010/SharePoint+Sandboxed+Solutions
http://blah.winsmarts.com/2009-12-SharePoint_2010_Sandboxed_Solutions__The_basics.aspx
