What exactly is FIPS 140-2?

FIPS stands for Federal Information Processing Standard. Each standard is published under a publication number and 140-2 deals with cryptography.

More technically this document is refered to as "Security Requirements for Cryptographic Modules"

The nist.gov website quotes the following:

This Federal Information Processing Standard (140-2) was recently approved by the Secretary of Commerce. It specifies the security requirements that will be satisfied by a cryptographic module, providing four increasing, qualitative levels intended to cover a wide range of potential applications and environments. The areas covered, related to the secure design and implementation of a cryptographic module, include specification; ports and interfaces; roles, services, and authentication; finite state model; physical security; operational environment; cryptographic key management; electromagnetic interference/electromagnetic compatibility (EMI/EMC); self-tests; design assurance; and mitigation of other attacks.