The security hole that this patch fixes allows someone to perform a man-in-the-middle SSL attack on your device. When you use a SSL connection between your device and remote server, the traffic is normally encrypted so that others on the same network can't see what you are transmitting. With this bug, anyone who is connected to the same wired or wireless network as your device will be able to listen in and manipulate the data that you send over SSL.
To install this update, start charging your phone and then while plugged in, go into the devices's Settings and select General and then Software Update. As already stated, if you are still using IOS 6, you will be required to update to version 7 in order to install this update.