AFA grading is a concept a company in America created for toys to try to give a more universal rating of collectables.
AFA actually stands for 'Action Figure Authority', which is the name of the company, and they rate toys from 5-100 (in multiples of 5) on three elements - Box, Window/Blister, Figure - arriving at an overall (not average) score out of 100.
People wanting to have a toy AFA graded, post it to AFA, for them to assess it, generate a score, and then seal it in a UV-resistent acrylic box. They then post it back to you, charging you for the grading and shipping.
A label is stuck to the box with the scores, barcode and its AFA number (which they add to their registry for others to verify).
More info can be found here at their website:
http://www.toygrader.com/
At first it was a good way for collectors to have their 'rare' figures rated to a universal system, and sealed in a (protective) case (and still is a good way). But as it became a more accepted, almost official, concept for proving/guaranteeing the quality of older/vintage toys, toy dealers started using it only to improve the resale value of their stock (which wasn't what AFA grading system was started for). Figures on ebay that are AFA graded are usually listed at 5-10 times the price of the same conditioned figure that isn't AFA graded. (not that they sell very often though - but do a search on ebay for 'AFA' and see what completed listings go for).