Baking materials consists of taking effects generated when an image or movie is rendered and store these effects in a UV texture. Currently, in Blender 2.41, this is not an in-built feature. But fear not! BRayBaker is the right tool for the job.
Baking materials is taking the material's many inputs and outputs and "flattening" the material so rendered effects such as bump maps, lighting, shadows, other textures maps, etc. are combined into a single image and then placed over the mesh using UV coordinates. Using baked textures when rendering is much faster since the renderer doesn't need to re-calculate the same level of effects each time. Enter BRayBaker originally by macouno. Currently in version 3.3 (released in Jan 06), it allows several options to be tweaked so you can get just the right texture generated. Be sure to read the instructions for do's and don'ts!