Scrypt is a type of cryptographic algorithm and is used by Litecoin. Compared to SHA256, this is quicker as it does not use up as much processing time.
Scrypt is also unique in that it requires RAM to be used during the mining process, meaning ASIC chips are less effective, which should have the effect of making the mining pool larger and more diverse. This is good for security. It also makes mining Litecoin less resource intensive.