There is a huge IOU from the government to the Social Security administration. The government would like to never pay it back. Legally it is owed, but since the government administers both ends of the deal, they might get away with this, in which case Social Security will run short on cash as soon as workers stop paying in more than it costs to operate. The result would be a huge shortfall, and the Bush administration would like to deal with that by "privatizing" Social Security in such a way that a large fraction of the baby boom will wind up getting far less in benefits than they were promised.

In short the claim that there is not really a trust fund is an attempt to rob Peter to pay Paul, where Peter is most of us and Paul is what Bush wants to spend money on (tax breaks for friends, juicy contracts for friends, miscellaneous foreign adventures etc).

The name for the kind of IOU that the government does not want to pay back is a "treasury bond". The government owes quite a bit more in IOUs to other parties that it has no way of paying, but the financial markets have an odd belief that people will always lend the government more, and therefore these bonds have no risk. If the markets ever start to worry that the government might not pay them back, the interest rate at which the government pays will go up sharply with potentially "interesting" consequences.

Cheers,
Ben