What is a punycode

Punycode is an encoding standard developed for use with internationalized domain names. It allows for the encoding and representation of Unicode characters for use in hostname resolution that only supports ASCII characters.

This means that, for example, a domain name can be comprised of Chinese characters. Punycode then encodes those characters and makes them referable in an ASCII format.

As Unicode represents more than just international character sets, Punycode can also be used to allow for hostnames that use emojis.

Source: seobility.net