IFF is an acronym meaning Identification Friend or Foe.
A transponder-based system of aircraft identification, used to distinguish friendly craft from enemy craft.
The system essentially uses a "Question and Answer" routine between one aircraft and another. A correct response leads to the questioned aircraft being identified as friendly. In this respect, IFF can be considered a Challenge-response Authentication system.
The interrogation process is undertaken automatically, with no direct pilot / operator intervention necessary.
IFF systems can also be incorporated into missile and or defence systems, thus preventing them from firing on / acquiring "friendly" targets. IFF transponders may also be fitted to civilian aircraft for the same reason.
The Cylon transponders found on Galactica contained IFF technology and were used by the battlestar in clandestine approaches to Cylon strongholds (Kobol's Last Gleaming, Part II).
Colonial civilian and military ships, such as Vipers, also have transponders. The civilian ships likely use civilian transponders used for commercial passenger flight, but are now recognized by Galactica as part of its Fleet. The Blackbird is likely not equipped with a transponder (or the transponder is disabled as part of its function), which almost leads to it being attacked by other Vipers who mistake its questionable DRADIS signature as a Cylon target after the stealth fighter returns from a reconnaissance mission (Resurrection Ship, Part II).