Dao is traditionally referred to as “the path”. Within Daoist philosophy it describes the eternal and active principle of creation which encompasses both original unity and duality. Dao thus constitute the basic principle of the world’s creation, it is a principle of immanence (= all-pervading) as well as transcendence (= undifferentiated emptiness, mother of the cosmos) and represents the highest state of being. Dao stands for the potentiality of all forms and also for the power that pervades the whole process of creation and creation itself. “Life in harmony with the Dao” refers to a lifestyle where any action is taken spontaneously and in harmony with the general situation, out of a state of inner stillness.
Read more: http://en.wikipedia.org/wiki/Tao