While reading documentation I found some instances of the phrase "NFS home directories".
I found it again amongst the SELinux NFS policy options ("enable NFS home directories support").
What are they?

I thought that maybe the phrase refers to a setup in which users' home directories are phisically situated in a remote computer and are mounted as NFS shares. Is that true?

What is the benefit in setting up a system that way?

Thanks

Yes that is true.

One benefit, should your local hard drive suddenly die all your files and stuff are safe because they are being stored remotely. However it is important to backup your remote files in case the remote computers hard drive dies!

Anyone else?

Using home (and program) directories on a file server greatly simplifies system administration when You have more than a few users. It simplifies configuration and maintenance such as backups, system settings, etc. It should be combined with some sort of centralised authentication scheme, such as Samba or Yellow pages. Depending on network configuration and the users most common type of data to work with, it may be (a lot) slower than local disks, so it is a trade off You have to consider. Often it's not even noticeable. But centralisation will mostly, IMO, save plenty bucks.

One of the big reasons for setting up NFS home directories is that you can use that same home directory on every system in your network.

It's really handy, since you can copy a file to your home directory on one system, then slogin to the system where you want to use it, and it's right there.

NFS home directories and some central account management tool (I setup LDAP, but you might also use NIS) make administration of login accounts and groups easy and painless. I only have to create an account and home directory once, and new employees can instantly access any system they need to do their job.

Even if you only have a small home network, you might have an old laptop in the living room, and your big desktop and file server in the bedroom. With an NFS home directory served by your file server, you get the same configuration, same bookmarks, etc, regardless of which computer you choose to login.

If you are using a GUI (Gnome, KDE, etc), you want the exact same version of the same operating system on all clients, or you will get weirdness when newer versions write values in the config files that older versions can't handle. For command line only servers, that's not a problem.

A very good point.
But you can still have /home/me as a local directory, storing all you local KDE / Gnome settings, but have /home/me/Documents stored on the remote NFS server, but mounted locally.
Linux is awesome

nothing to do with networking. moved to Linux - General.