"Upstream" is the kernel source tree maintained by Linus (and friends). As Linux is open source, anyone can fork it for any reason, and a lot of people do. However, Linus still maintains the common base that people use to build on top of. "Upstreaming" is the process of getting your code included in these official releases. It's significant because there are no stable interfaces inside the kernel. That is, in any release the Linux developers can change any internal system of the kernel in any way they please, with the only caveat that to get that change included they have to fix up any breakage it causes, but only inside upstream. Or, if you are building your own kernels with your own patch sets, any release of the kernel can completely break your build.
Because of this, if you want your code to be actually used by real people, upstreaming it is considered extremely good, to the point of being almost a necessity. However, it can be a significant hurdle to overcome. Partly because there are fairly strict code quality/style requirements (as any kernel dev is supposed to be able to jump into your code to fix issues they caused by modifications elsewhere), but mostly because unlike inside the kernel itself, all interfaces between kernel and userspace are stable. That is, if you start supporting some operation from userspace, you need to be able to support it in perpetuity. Also, the kernel devs are extremely reluctant to add any kind of interface to the kernel where the only thing that uses it is some specific non-free binary blob on the userspace side.
Currently the main reason the code is not upstreamable as is is that it needs a very substantial userspace program to function, which currently only exists as nonfree, and nVidia doesn't think that the interface used to connect to it is well-enough decided they want to freeze it.
So the main hurdle for upstreaming is developing that interface until they are happy with it, and then develop some free version of the userspace portion of their graphics stack that can plug into that same interface.