When they say the market gained or lost so many points, what exactly is being measured?

Answer 1

The exact calculation depends on which index they are referring to when they say that, but it is roughly an average of the performance of the stocks that make up the index. For the S&P and Russell indices, the largest stocks get a heavier weighting, so it is more like the average performance of the largest stocks in the indices. The Dow is already pretty much limited to the largest stocks.

Answer 2

Usually, they are talking about one of the market indexes like "the Dow" (the Dow Jones Industrial Index) or the Nasdaq. These indicators are just the added-up prices of a group of "representative" stocks that reflect the market sentiment.

The Dow is actually composed of 30 companies... here's the Wiki on it: http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average

Always remember that this is just an indicator of broad market sentiment...Plenty of stocks on any given day go in the opposite direction to the Dow!