Image optimization has absolutely nothing to do with SEO.
Enni's is essentially the "correct" answer. Image optimization is the optimization of an image, generally in terms of reduction in file size without visible lose in image quality.
This often involves using a program like Fireworks (favorite), Photoshop, GIMP, etc., to save the image in an appropriate file type that suits the image and often playing with other settings to reduce the overall file size without changing it visually. The reduction in file size does have a -very- limited affect on SEO, but just barely and only for a few search engines (those that value download speed as a criteria).
One of the most common types of optimization is simply picking the appropriate file type. The three best supported and most commonly supported are:
- JPG - Good for any photographic image with lots of different colors.
- PNG - Good for any image larger than about 100 x 100 pixels that has fewer and simpler colors. Also good for anything that should be a JPG, but needs to have transparency (since JPG doesn't support transparency).
- GIF - Good for smaller images (though is often still beat by PNG-8). Restricted to 256 different colors in any given image.
Those are generally rules and each has pros and cons due to the different algorithms that they use for compression and storage. There are also three flavors of PNG (PNG-8, PNG-24, and PNG-32) which have slightly different properties. (PNG-8 is very similar to GIF with the 256 color limit and transparency support, PNG-24 is any number of colors without transparency support and PNG-32 is millions of colors with transparency... often used as a "JPG with transparency").