Location: Settings link in Administration > Plugins > Authentication > Manage authentication in 2.0 onwards or Administration > Users > Authentication > Manage authentication in 1.9
Shibboleth is an Internet2 Middleware Initiative project that has created an architecture and open-source implementation for federated identity-based authentication and authorization infrastructure based on SAML. Federated identity allows for information about users in one security domain to be provided to other organizations in a common federation. This allows for cross-domain single sign-on and removes the need for content providers to maintain usernames and passwords. Identity providers (IdP's) supply user information, while service providers (SP's) consume this information and gate access to secure content.
(Taken from Wikipedia, the free encyclopedia)
Configuring Moodle to use Shibboleth
The README.txt file in the auth/shibboleth folder of your Moodle distribution contains set-up instructions.
Shibboleth in the UK
In the UK Becta and JISC have implemented an education federation using Shibboleth to provide single sign on. This means that education establishments in the UK using Moodle should be able to authenticate their users via Shibboleth IF their education organisation joins the UK Access Management Federation and their users' identity is held by the identity provider the LA/RBC use. For maintained schools in the England and Wales this will probably mean contacting their Local Authority or Regional Broadband Consortium (RBC). A list of current UK federation members can be found here.