Specifically, the diagram records the pressure of steam versus the volume of steam in a cylinder, throughout a piston's cycle of motion in a steam engine.  The diagram enables calculation of the work performed and thus can provide a measure of the power produced by the engine.
To exactly calculate the work done by the system it is necessary to calculate the integral of the pressure with respect to volume.  One can often quickly calculate this using the PV diagram as it is simply the area enclosed by the cycle.
Note that in some cases specific volume will be plotted on the x-axis instead of volume, in which case the area under the curve represents work per unit mass of the working fluid (i.e. J/kg).