Pushing the Envelope
This is an aviation term. It means pushing the aircraft to its limits, especially in the context of flight testing. Envelope has several secondary definitions referring to a collection of curves (mathematical and engineering jargon). So in the world of aeronautical engineering the envelope is the collection of curves that describe the maximum performance of an aircraft. To push the envelope is to take the aircraft to the edge of what it was designed to do and try and take it beyond.

http://www.wordorigins.org/wordorp.htm

--------------------------------------------------
Note added at 5 mins (2005-10-20 16:20:18 GMT)
--------------------------------------------------

"Push the envelope" is now used figuratively to mean "stretch the boundaries". (The image is not of pushing a mailing envelope across a desk: those who push this sort of envelope do it from within. Cf. "pressing the limits".) On its AOL message board, Merriam-Webster Editorial Department wrote: "A sentence we spotted in a 1991 issue of the Wall Street Journal provides a typical example of the use of the phrase [...]: 'Ads...seem to be pushing the envelope of taste every day.' 'Push the envelope' in this sense is a very recent arrival on the scene, dating only from 1988 according to the evidence in our files.
http://www.yaelf.com/aueFAQ/mifpushenvelope.shtml


More explantion
http://www.smh.com.au/news/big-questions/what-does-the-expre...
Possible explanations
http://portland.indymedia.org/en/2004/11/303915.shtml