Very common term in the embroidery industry; sometimes referred to as setup tape.
The simple way to explain digitizing is the process of turning artwork (logo) into stitches. When a digitizor recieves your logo, they trace around every color in your logo and plans the path for the embroidery machine to stitch. Good digitizing knows what type of stitches to use for different circumstances. Complex logos requrie artistic ability, and that will differentiate one digitizer from another.
Digitizing can be very pricey; I have have see the price of embroidery go from $50 to $250, it very dependent on complexity of logo and time it takes to convert design. The good news, it is a one-time charge because once the art is digitized, it can be used over and over as long as it same size every time.