Vanilla is the term modders use to refer to a completely unaltered original installation of the game, or to a completely unaltered original file. While a patched game is technically different from the original version, it is usually called vanilla anyway. Generally, the word is mainly used to distinguish between modifications and the unmodded (but often patched) game.
Before modding anything always make sure you have made a back-up copy of the 'vanilla' files you are about to alter.
Before installing a modification it is best to make sure that you have made a complete back up copy of the original 'vanilla' installation. Mods that are installed to their own mod folder should not damage your original installation. However it is always sensible to keep a back-up copy of the game to avoid having to un-install and re-install if anything goes wrong.
The term often causes confusion amongst members who are new to modding or gaming forums in general. It derives from the ice-cream flavor vanilla which is commonly considered the most basic flavor.