LAME is an encoder designed to convert various digital audio formats to MP3. It is used by Islandora to create MP3 datastreams when ingesting audio objects.
Encoding and playing MP3s is restricted by patent and copyright laws that vary from country to country. You will need to determine this for your own installation.
The LAME Encoder can be found at http://lame.sourceforge.net/download.php, and includes source code for compilation. For Linux installations, some package managers include LAME as part of the standard repositories; for example, on Debian- and Ubuntu-based distributions, it can be installed with:
sudo apt-get install lame
Ubuntu-based systems have the option to install LAME when the operating system is being installed as part of the ubuntu-restricted-extras package.
Check the Audio Solution Pack page for more information on how to integrate the LAME Encoder with Islandora.