According to Wikipedia, "Selvage denim (also called selvedge denim) is a type of denim which forms a clean natural edge that does not unravel. It is commonly presented in the unwashed or raw state. Typically, the selvage edges will be located along the out-seam of the pants, making it visible when cuffs are worn. Although selvage denim is not completely synonymous with unwashed denim, the presence of selvage typically implies that the denim used is a higher quality."
"The word "selvage" comes from the phrase "self-edge", the natural edge of a roll of fabric. In this case, denim made on old-style shuttle looms. These looms weave fabric with one continuous cross thread (the weft) that is passed back and forth all the way down the length of the bolt. As the weft loops back into the edge of the denim it creates this “self-edge” or Selvage. Selvage is desirable because the edge can’t fray like lower grade denims that have separate wefts which leave an open edge that must be stitched. Shuttle looming is a more time-consuming weaving process that produces denim of a tighter weave resulting in a heavier weight fabric that lasts."
If you want to read more for yourself, the denim page on Wikipedia has lots.