This is the driver for the UNIX-style “random” devices, /dev/random and /dev/urandom. This driver intercepts so-called “random” hardware events and processes them into an entropy pool which user programs can draw from as necessary. When that pool runs dry, it can optionally provide “mostly” random numbers until more randomness can be obtained.
Please note, however, that disabling this driver is not recommended except in embedded systems which are known to not require this support. In addition, TCP/IP networking will not be available without this option. Many libc-style and other libraries depend on this driver for functionality, and not compiling it in may cause unexpected problems in applications linked against those libraries. The upside to all this is that you can save about 6K for other things.
This driver requires information collected at boot time and may not be compiled as a module. If you're not sure what to select here, you definitely need to say “Y”.