It says that they get to take off the first 10 points of any HP damage that is not delivered by both a Magic and Silver weapon. That is, to ignore the 10 point reduction, your weapon must be both Magic (Enchanted) and Silver.
Just a few caveats, Mithral counts as silver. Also, temporary enhancements count for magic (so a magic weapon spell counts). Sufficiently enchanted items also count as silver for overcoming DR (I think it's +3 or better, see the magic items chapter).
EDIT: Note that DR only works against physical damage, energy damage (like from a fire ball spell) ignores DR.
Effects that reduce damage have the following notation:
DR x/quality tells you that each physical attack is reduced by x unless the attack has specified qualities, usually specific material and/or alignement and/or being magical.
Resist [energy] x on the other hand reduce damage from [energy] by x.