This means that in court proceedings they cannot use or talk about what goes on in the mediation. They do this so that parties can feel comfortable in a mediation, and will talk freely and openly. A free discussion may not happen if parties felt that what they said would later be used against them in court. Most mediations are conducted on the understanding that the mediator can't be called as a witness in future court proceedings. As mentioned above, this is so the parties feel free to discuss the issues.
Court cases proceed using very strict rules of procedure and rules of evidence.
This means that the court may never hear about underlying issues that could be very significant. The court does not ask about feelings and how they have affected the issues or the parties. The court's interest is in applying the law to the facts and making a ruling that assigns blame or fault or makes a determination of the parties' rights. The ruling at the end of the case is imposed on the parties. In mediation, the mediator encourages the parties to talk about feelings.