OK then, what is Mastercoin?:
Mastercoin is a protocol layer that provides advanced cryptographic currency functions using the bitcoin network as a secure transport medium. A total of 619,478 Mastercoins exist - a fixed cap (no new Mastercoins will ever be created).
 
Sounds interesting, where can I find out more?
The best place to start would be at the official project tread on bitcointalk (linked here), this contains the most up-to-date information on Mastercoin along with links to the Wiki, coding contest and other relevant resources.