Eri has it basically right. It allows people who pollute much less to trade "credit" with people who pollute much more.

The basic theory is sound, and even laudable. It finally brings market forces into pollution externalities, ideally allowing people to make money by going greener, and also permitting industries which have a lot of difficulty quickly changing technologies to continue operating without going out of business.

In practice, it gets a bit fuzzier. Unfortunately, there is a lot of "scam" potential here, both at commercial and government levels, and some scams have already been exposed. I've looked into it some, but have had great difficulty finding sources that don't have a large axe to grind on one side or the other.

Here's a short piece on the subject from Consumer Reports, a source I've found quite trustworthy for many years. Be sure to check out their links in the article too.