Everyone keeps talking about them. Is it a special item in the game?

A voxel is a volumetric pixel (i.e. a 3D pixel), see e.g. Wikipedia. Outcast's engine uses voxels (in contrast to (nearly?) all current 3D engines).

Trollololol?
A voxel is a unit that normally represents a square inside a 3D grid.

Delta Force 1 and 2 also,some comanche… well a lot of Novalogic games.
And in tiberian sun/red alert 2 the ground is also in voxel I think as it is deformable with explosions (well only in tiberian sun, the option was removed in red alert 2 but it's the
same engine so still voxel).
Edit : oh and more recently Crysis uses voxel also for the maps, voxel is a good way to make nice terrains.

Also read [url][url=http://en.wikipedia.org/wiki/Outcast_(video_game)#Technology[/url]http://en.wikipedia.org/wiki/Outcast_(video_game)#Technology[/url[/url]]

Imagine if the game world was made up of many discrete colored cubes. That's voxel rendering in a nutshell.
The big problem with voxel rendering is that 3D accelerators and the APIs they used were all based on polygons. This basically meant that the CPU got thoroughly hammered with running the game.
Oh, and as a fun voxel-related aside: Voxelstein 3D. (download link) Better have a fast CPU for that one, though-far moreso than Outcast.

While you can imagine a voxel as a cube, voxels do not have to be represented as cubes (voxels are used a lot in medical software because the medical hardware that scans your body works with voxels - of course those voxels are way higher than those used in most realtime programs, such as games) - they just have a cubic form, but if you think of them as -for example- smokey cubes you'll realize that they can have a cloudy appearance.
Note that Outcast doesn't really use voxels but a voxel-like raycasting engine (raycasting is commonly used to render real voxel scenes). Back in 90s most people used the term "voxel" for such engines.