Hi,
OE is openembedded. It is a metadata repository that contains all information to build embedded linux images from the source. Together with the bitbake buildtool you get a very strong and professional framework for embedded development. The framework is able to build desired crosscompiler toolchains and provide the needed packages for compiling packages.
This can usually be used for porting general linux software (there exist a lot, much more then for pocketpcs ) to embedded linux distibutions, such as Openzaurus is. It is also very helpful for developing special embedded software, such as opie or gpe.
Cheers,
Sam