An FX index is composed of 5 or 6 major pairs, and measures the strength of a particular currency against a collection of other major FX pairs.
The strength of the index is directly related to the price fluctuations of these currency pairs. When that particular currency rises in price compared to the other currencies, the value of the index increases.
These products are popular amongst traders who prefer to diversify their risk instead of investing in the price movement of a single or currency pair.