What is render distance?
Because the world inside Minecraft is really huge, only some chunks of it are loaded into the game (rendered) at any one time. This makes the game quicker to load by not bothering to show you the bits that you don't need to see.
Why do I need to change it?
The parts that have been rendered are the only bits that you can see at any one time - the bits in the distance that you can’t see look like fog. Setting a lower render distance will make the game load faster, at the expense of a more foggy view of the world.
Here's the same view set to three different render settings:
What do I change it to?
Prior to version 1.7.2. render distances used to be called Far, Normal, Short and Tiny, but these are now measured in number of chunks (a chunk is 16 blocks wide by 16 blocks long by 256 blocks deep). The Normal setting (8 chunks) should be fine for most games, but if you're experiencing lag (the game is pausing or slow to run) then you can try lowering the render distance.
How do I change the render distance?
1. Pause the game (press Esc) and click Options
2. Click on Video Settings
3. Move the Render Distance slider to reflect the number of chunks you want rendered at one time.