This term (al-Ahzab 33:40), or the phrase "seal of prophecy" (Khatam an-Nubuwwa) is used by Muslims to mean two different things. This entry discuss the metaphorical meaning. For the other meaning, see Seal of Prophethood.
This is a metaphorical term used to mean the "last prophet", the "last of the prophets", the "final prophet", that no other prophet is to come after Muhammad. Muslims apply this meaning to Muhammad to emphasize the finality and supremacy of Muhammad's prophethood. In so doing, many have used it to "prove" that he is the final prophet against the claim of the Ahmadis, and also that his message supercedes those before him, most notably, the Jews and the Christians.
Muhammad himself claimed to be the "seal of the prophets":
The Prophet said: "Truly Allah made me the Seal of prophets while Adam was between water and clay." (related by Ahmad in the "Musnad," by Bayhaqi in "Dala'il an-Nubuwwa" and Ibn Kathir in his book "Mawlid Rasul Allah.")
In a variant of the verse as-Saff 61:6 by Ubayy b. Ka'ab, it reads
"O children of Israel, I am God's messenger to you, and I announce to you a prophet whose community will be the last community and by which God will put the seal on the prophets and messengers." [this verse is different in today's Qur'an.]