NDF stands for Non-Deliverable Forwards. These types of contracts are used for currencies where it is difficult (and sometimes impossible) to take actual delivery of the currency. Examples of this are Korean Won (KRW) and Taiwan Dollar (TWD). These deals are entered into with a counter-party for a forward date. At the forward date, since the actual foreign currency is not delivered, the original transaction rate is compared against the current spot rate and a difference is calculated and paid. This 'p/l' is typically settled in the local currency.
As of release 4.70 (or CFM add-on to 4.6C), SAP's FX functionality allows the user the flexibility to settle FX spot and forward contracts either physically (moving the full currency amounts for both the buy and sell) or for cash (net amount in local currency which is then paid or received).