This video is quite instructive:

Here are some definitions and explanations directly from Nielsen (PDF) updated for the 2008-2009 television season.

Common Terms:

TV HHs: the Nielsen estimate of the number of television households in the USA

PERS 2+: The Nielsen estimate for the number of people aged 2 and over in the USA

LIVE+SD: The number that watched a program either while it was broadcast OR watched via DVR on the same day the program was broadcast (kind of, see below)

LIVE+7: Same as above, but 7 days rather than 3.

Ratings: Nielsen uses a ratings point system. 1 ratings point = 1% of the Nielsen estimate for the category being measured (more detail below).

A18-49 or Adults 18-49 Ratings  - this is the advertising demographic advertisers are usually most interested in for primetime shows.  It's the important number in terms of how well a show is doing.  Total viewers (P2+ above) don't really make a difference.

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It is our goal to demystify the #s wherever possible. Here are some helpful numbers to keep in mind.

Nielsen uses a ratings point system. One rating point = 1% of the Nielsen universe. There are multiple Nielsen Universes.

TV HHs= Households with TVs

Pers 2+ -this is the estimate of the total number of people age 2 and over in the US for the 2007-2008 season.

These are the two basic sets of numbers that drive the generally available ratings which Nielsen releases.

Keeping in mind that a ratings point is 1% of the universe, all of the aggregate ratings you see are calculated against these two numbers. Nielsen provides ratings for both TV HHs AND Pers 2+. Since these are two different sets of numbers, the lists can be very confusing. I

If you see a HHs rating of 6.2, that means 6.2% of the households were tuned into that program. The math works like this (based on 2007-2008 Nielsen estimates):

6.2% of 112,800,000 = 6,993,600 TV HHs were tuned in.

While TV HHs are a good proxy for how many people are watching, Nielsen also tracks how many people in each household were watching a show. Sometimes you may see something with a VIEWER or Pers 2+ rating. These numbers are just a percentage of the 286,300,000 people estimate.

Different shows have different numbers of people per household watching. It's not the same for every show. So it's very possible for one show with less households to have more viewers. It happens all the time. Again, we seek to eliminate that complexity by focusing on viewers and ranking our lists accordingly.

Nielsen further breaks their universe estimates for Persons 2+ into age groups (2-11, 18-34, 25-54, etc.). The particular age group ranking generally available is the 18-49 demographic. For the 2007-2008 season, this equals 131,050,000 (or less than HALF of the total universe of 286,000,000).

Advertisers tend to like the 18-49 and 25-54 brackets. Currently we only have access to data segmented by 18-49.