Sheaths are most commonly seen in Cattleyas and their relatives. It's kind of a little protective envelope the plant creates. The flower buds form inside the sheath, and once they mature will break through the sheath and bloom.
With most Cattleya plants In sheath means the sheath has grown out but may not necessarily mean buds have or will form from within it, sometimes one is produced and it simply withers after a period without ever producing a flower.