"modding" means changing things in on your phone. you have 2 kinds of modding:

softmodding: changing things in the firmware of your phone (like changing the menu icons, acoustics (for beter volume), camera driver (for better video's and pictures), etc etc)

hardmodding: this is changing the hardware of your phone. like: replace the case, change LED's, add a speaker, that kind of stuff

the benefits depends on what you want to do with it ;)