It is a running test (can be cycling too) that tests the maximum O2 saturation into your muscles during peak performance....or something like that. They hook you up to a mask that you have to breath through and an EKG. It's tough! I had to do it for a Volunteer Fire position.
VO2 max is the maximum volume of oxygen that by the body can consume during intense, whole-body exercise, while breathing air at sea level. This volume is expressed as a rate, either liters per minute (L/min) or millilitres per kg bodyweight per minute (ml/kg/min). Because oxygen consumption is linearly related to energy expenditure, when we measure oxygen consumption, we are indirectly measuring an individual's maximal capacity to do work aerobically.