Basically, an integrated chip is hardwired into your motherboard and uses the system RAM as VRAM. This typically means that a portion of the system RAM is permanently assigned to the GPU. A discrete chip comes with dedicated RAM. For example, my old Laptop had an integrated Radeon X1250, which meant that 256MB of system RAM were unavailable, as it was used by the GPU. My current system, a Radeon Mobile 5470, comes with its own gig of RAM. Due to having to share memory bandwidth with the rest of the system, integrated GPUs are several orders of magnitude slower than their dedicated cousins (And Intel graphics chips suck ass in general anyway).
IMHO, while it's certainly good practice to make sure your mod runs playably on lower-end systems, you should not start to restrict yourself to catering only to the low end. I'm sorry, Intel users, but as Fury said, if you want to do real gaming, get better Hardware. For me, while it's certainly cool to know that FSO runs well n netbooks, that's more of a curiosity than a design goal.
For me, the lowest end one should try to design for are the few remaining cards that can handle OGL 2/DirectX 9c/Shader Model 2, everything below that means sacrificing a lot of potential prettyness on the altar of performance.