The headset is a component of a bicycle that is attached to the front of the frame and allows the handlebars and front wheel to turn freely. The bicycle frame has a vertical tube, called the head tube, on its front portion. The headset is made up of rings, or "cups," that sit at the top and bottom of the head tube, often with ball bearings inside them. The handlebars and front wheel fork rest on these cups, which then roll freely along on top of the ball bearings themselves. Integrated headsets have cups that fit completely inside the vertical tube on the bicycle frame, providing a smooth, clean look to the front of the bicycle.
Many types of headsets exist, with the integrated headset being one of the newer innovations in bicycle technology. Typical non-integrated style headsets have a higher "stack height," which essentially means that all of the parts that make up the headset assembly itself are taller and stick up off of the bike frame. The stack height for an integrated headset is much lower as the parts are all contained within the front head tube of the frame.
Most newer road bikes, and even some mountain bikes, are now sporting integrated headsets for their lower overall height and added strength. Sprinting or aggressive turning puts a lot of strain on the headset of a bicycle, and an integrated headset is able to rely somewhat on the internal rigidity of the bicycle frame itself. The main disadvantage of an internal headset is the fact that if maladjusted or if the headset becomes loose, it can actually damage the bicycle frame itself. Non-integrated headsets do not have this problem, as maladjustment normally only leads to damaged headset cups, which is a less expensive fix than a new bicycle frame.
Overall, bicycles with an integrated headset may boast better handling, slightly lower weight, clean looks, and a stronger, more responsive feel. Many bicycle brands are moving to this concept, including Giant Bicycles, Trek, and Ibis Cycles. An integrated headset can also be purchased as an aftermarket accessory for many existing bicycle models and brands.