SCI is the Sierra Creative Interpreter, a game engine created by Sierra On-line in the late 1980s. It was the second game engine used by Sierra for graphical adventure games, the first being AGI (Adventure Game Interpreter).
In 1988, Sierra released their first games created with SCI. One game, King's Quest 4, was created using both AGI and SCI because it was in development during the transition. Below is a picture of both the AGI and SCI version. You can notice quite an improvement in the SCI version.
Over the years, SCI evolved greatly. In the first version, it supported only 16 colors maximum for the game's graphics, yet they looked great because of some features that the SCI engine had. The background images are drawn in vector format to save space. With this format, Sierra was able to add features such as color dithering, which simulated a greater amount of colors.
There were changes made to the engine over the next few years, but none were as significant as the ones in 1991. That year, Sierra introduced 256 color image support for SCI games with version 1. In this version, there were other changes as well, one being the removal of the parser. This meant that the games had the more modern and easier to use interface. Some adventure gamers prefer the parser, some prefer the point and click interface, it's all a matter of opinion.
Please read about the differences between the SCI versions (SCI0, SCI1, etc).