It means exactly what it sounds like it means. When Steve says or does something, the very nature of reality is altered.

Steve says that Safari is the best web browser out there? It is.
Steve says that the iPhone gives you the "true internet"? It does.
Steve suggests that you need a bigger brighter screen to watch video on your Nano? You do.
Steve informs you that the ability to create ringtones from music you already own for an additional $.99 is a good deal? It is.

These are not the droids you're looking for.

$599 is a completely reasonable price for a sexy cell phone.
Wait! Now $399 is a completely reasonable price for a sexy cell phone.

You need a new iPod.
The reality distortion field was in full effect at Apple's keynote today.
by Cziltang Brone September 5, 2007
reality-distortion field n. An expression used to describe the persuasive ability of managers like Steve Jobs (the term originated at Apple Computer in the 1980's to describe his peculiar charisma). Those close to these managers become passionately committed to possibly insane projects, without regard to the practicality of their implementation or competitive forces in the marketpace.
"A reality distortion field. In Steve's presence, reality is malleable. He can convince anyone of practically anything. It wears off when he's not around, but it makes it hard to have realistic schedules."
by Matrix9180 August 13, 2004