First in short - clustering on an index forces the physical ordering of the data to be the same as the index order of the index chosen. Since you can have only one physical order of a table, you can have only one clustered index per table and should carefully pick which index you will use to cluster on or if you even want to cluster. Unlike Microsoft SQL Server, clustering on an index in PostgreSQL does not maintain that order. You have to reapply the CLUSTER process to maintain the order. Clustering helps by reducing page seeks. Once an index search is done and found, pulling out the data on the same page is vastly faster since once you find the start point all successive data nearby is easy picking.
Noam Slonim, and Naftali Tishby. SIGIR '00: Proceedings of the 23rd annual international ACM SIGIR conference on Research and development in information retrieval, page 208--215. New York, NY, USA, ACM, (2000)