Muzzle velocity is the speed at which a projectile moves at the time it leaves the barrel of a weapon. This does not apply to beam weapons, such as the Rhino's Particle Cannon, which instantly hit their targets. For the most part, this controls the speed of the projectile for the entire time it exists, but weapons such as missiles and the Nanodart Launcher have custom scripts that control their speed.
When comparing weapons, a higher muzzle velocity is almost always better. A projectile with a low firing arc and a high muzzle velocity will hit moving targets more reliably, but it is also more likely to hit any terrain or walls that may be in the way. The Sprite Striker has an extremely high muzzle velocity, and the projectiles it fires are very high speed.
On the other hand, a projectile with a high firing arc (such as artillery) and low muzzle velocity will take much longer to reach its target, making it poorer at hitting moving targets. This can also lead to overkill by wasting shots after firing a killing shot. To make up for this, most such weapons have an area of effect that will still damage units that have moved a little bit since the weapon was fired.
In the original Supreme Commander, Muzzle velocities seemed to have little effect on projectiles. However, with FA, these values are vital to proper projectile behavior.