Short Explanation
The pitch first indicates the size of the teeth on a gear. The higher the pitch number, the smaller the teeth. If gears #1 and #2 both have 40 teeth, but the teeth on gear #2 are smaller, then gear #2 will necessarily have a smaller circumfirence because its smaller teeth will fit into less space. So a 48 pitch gear with 40 teeth is smaller than a 32 pitch gear with the same number of teeth.

The pitch is also used to identify a gear "set" or family. Teeth on one gear need to interact with teeth of the same size and shape. Gears with the same pitch number can mesh efficiently and should be used together. Gears with different pitches should not be used together. (You should also ensure that the tooth "pressure angle" is the same between meshing gears. The two most common pressure angles are 20° and 14.5°.)

Read on for the Long Explanation...

Pitch Diameter
For a gear, "pitch" is rooted in the tooth design. For any given tooth design there is a point about halfway down the tooth face at which the meshing gears deliver the optimal force. If you draw a circle through all of those points on the gear, the circle will describe the "pitch diameter." This is often abbreviated as P.D. (see diagram below). The pitch diameter is always slightly less than the overall Outside Diameter (D).

If you consider a set of gears with the same tooth design, they will all have the same pitch. By changing the diameter of the gear, you change the number of teeth that can fit on the gear.

Calculating the Pitch Number
When talking about the "pitch" of a gear, the word "pitch" is actually short for the formal term of "diametral pitch." The diametral pitch number used to identify a set of gears sharing the same tooth design is calculated by considering a gear with a 1" pitch diameter. Simply count the number of teeth on that 1" gear and that is the diametral pitch for the set of gears sharing that tooth design.

So, if you look at the 32 pitch gear with 32 teeth, you will see that it has a pitch diameter of 1.00". Likewise, the 48 pitch, 48 tooth gear will have a 1.00" pitch diameter.

So as the pitch number increases, it indicates more teeth around a gear with a 1" pitch diameter.

How to Use This Information When Designing a Project
Gear pitch can have three primary areas of impact on your project. When comparing a larger tooth gear to a smaller tooth gear of the same material and overall design:

Larger gear teeth can transmit more force than smaller teeth before breaking.
Larger teeth mean larger diameter gears, and larger gears take up more space.
Larger gears generally cost more than smaller gears (with the same tooth count).