A badge is a symbol of an accomplishment. For example, the U.S. Coast Guard awards a scuba badge to personnel who qualify as a naval diver. If you meet someone who has earned the badge, you know that s/he will be able to dive underwater with scuba gear.
Digital badges are an online version. Cycourses can issue badges to students. Students can store badges in their OpenBadge backpack. The badge in the backpack links to the awarding Web site. Other people can get a description of the badge, and verify that it was awarded.
The badge system is linked in to the feedback system. When a grader says that a student has completed an exercise, the feedback system triggers the badge system. It checks to see whether the completed exercises finishes the set of badges that make up a badge. If so, it awards the badge to the student.
There’s a walkthrough showing how to make a badge.