Put loosely, the term simply means to chop up your Photoshop document into pieces,

------

The other day a friend of mine said something that caught my attention, “I’m trying to learn how to slice a PSD.” It’s a simple enough statement. As soon as he said it, I knew exactly what he was talking about, and yet, there was something in there that didn’t quite set right.

Upon seeing my hesitation my friend responded with a question, “Do we still slice PSDs?” Great question! For beginners, jargon isn’t merely jargon, it implies a process and suggests a method of action. For this reason, it’s often helpful for more advanced developers to define their terms in a way that is meaningful to others. Today we’ll dive into the theory behind the process of converting a PSD to to a web page and end with a discussion on the ups and downs of designing in the browser. - http://thesiteslinger.com/blog/do-we-still-slice-psds/