In the year 20X6, you're signing the contract to publish your first book (hooray!) when you come upon a clause with the following (or similar) wording: "Fancy Pants Publishing House retains the right of first refusal on the author's subsequent book." (In retrospect, it's unlikely you'll see those exact words, unless my dream of founding Fancy Pants Publishing [FPP] takes off before 20X6.)
Back to the contract, though: when a publishing house requests right of first refusal, they're contractually obligating you to show them your second book before you show it to any other publishers. If they want your second book, they get it; if they don't, you can sell it to someone else, but they must see it and decline the offer first. Increasingly, clauses like these are finding their ways into many a first-time author's book contract.
Personally, I'm no fan of the ROFR because I generally dislike any contractual obligation that limits an author's future works or actions, and Tim O'Reilly of O'Reilly Media agrees. In fact, he advocates that if you come across such a clause in your contract, you actually strike it out. This is for a number of reasons: what if your first book doesn't do well and you want to try your second with another publisher? What if your first book does really well with the small house you first signed with, and you want to move on to a larger house that can offer a more substantial advance and more powerful marketing push? What if you simply have creative differences with the folks handling your book?
O'Reilly mentions that an author's refusing the ROFR isn't generally a dealbreaker for the publisher, though I'm no literary agent and can't really comment on whether or not that's the case. (If there are any agents in the house, I'd love to hear your comments!) This, by the way, is one of the many reasons you want a literary agent on your side if you're dealing with a publishing house: contracts are tricky beasts, and if you don't have a pro on your side, you may find yourself without recourse when your publisher asks that you fulfill a half-dozen legal obligations you didn't even know you had. An ounce of prevention, a pound of cure, &c &c.
You tell me, though, mes auteurs: what do you think of the ROFR?