DRM (or Digital Rights Management as it is known) is the method used by Amazon to physically prevent any user from copying Kindle book files. This means you can only read an ebook on a Kindle device or device running a Kindle app linked to your Amazon account. Not every author chooses to enable DRM on their ebooks, limiting the purchaser to the amount of devices the ebook can be viewed on over time.
Where Does the Idea of DRM Come From?
At the end of the day it's up to the author whether they want their ebooks to have DRM enabled. As mentioned above, this limits the reader to how many ebooks they're allowed on certain devices. In the digital age of devices, this can be a problem, but Amazon customer service are happy to remove a device from your list when contacted. Amazon has the power to remove any DRM enabled ebook if they need to, this happened when a copyright dispute came about involving George Orwell's 1984. Which stirred up quite a storm that the company eventually said it wouldn't happen again in any comparable cases in the future.
One of the easiest ways to tell is to check the Simultaneous Device Usage in the product details of the book you're interested in. If a limit is mentioned, chances are that particular book is probably DRM enabled.
According to the Law
Depending on your country of residence the law on this particular matter can vary. The US Digital Millennium Copyright Act may be breached, this law states that not only is it illegal to copy digital files without permission, but it is illegal to bypass any copy protection measures.