Learning Objects are digital materials with defined instructional value that can be used in a variety of ways to improve teaching and learning.
The ability to share quality teaching materials, targeting specific and known instructional goals, can help teachers and librarians develop an excellent teaching curriculum more quickly. Learners benefit from the ability to repeat an activity as many times as required to gain a full understanding of a concept.
Other definitions: http://learnware.uwaterloo.ca/projects/CCCO/cloe_about_def.html
Note: for examples of Learning Objects (both instructional such as survey, image, audio and video tools; and design tools for authoring, converting material to learning objects and course conferencing tools) see http://www.library.uiuc.edu/diglit/faculty/teaching/tools/index.html