A YO is a decorative increase--it creates an eyelet for a lacy look.
To do a YO before a knit, bring the yarn to the front as if you are going to purl and knit the next stitch. The knit you make is not part of the YO in counting, though, so if a pattern says YO, k3 the knit following the YO is part of the 3.
To do a YO before a purl, you bring the yarn from the front back over the right hand needle and to the front again.
Amy has video if you'd like a visual.http://www.knittinghelp.com/knitting/videos//increase/yo-rds.mpg