When a player is about to become a free agent each team has to opportunity to give that player a designation, keeping them there for at least one more season. When "franchising" a player you must pay the average of the top 5 players in that particular position.
After a one year contract, and success the Eagles Michael Vick was up for free agency. The Eagles made him their franchise player and paid him the average of the top five quarterbacks in the league. This not only keeps that player in the organization, but also gives the organization a year to renegotiate a new contract.