"Clipping is a form of waveform distortion that occurs when an amplifier is overdriven and attempts to deliver an output voltage or current beyond its maximum capability."
This can manifest in several different ways, and on this forum most people are probably talking about driving the McIntosh (the power amplifier) or JBLs (the speakers) in such a way that they clip. This is accomplished simply by turning the volume up fairly high on the power amp. For Jerry tone, I don't think that many people use preamp clipping, as he didn't really utilize that.
Pedals and master volume circuits duplicate clipping by saturating some component (transistors, diodes, tubes, etc.) and this will sound distorted.
For more on the topic, look in to asymmetrical vs. symmetrical clipping, odd vs even order harmonics, and some other things that I can't remember to mention.