Hi Gaurav,
Last Known Good Configuration is a Windows startup option that uses the most recent system settings that worked correctly.
It is used when you have trouble booting to desktop screen, For Example : Blue Screen or Black screen when the computer Starts.
This is the first step of troubleshooting in windows when you cannot start the windows normally
For More information on Last known Good Configuration. Check this link
http://windows.microsoft.com/en-US/windows7/Using-Last-Known-Good-Configuration
Regards
Syed Ali