Native shell is a program for experiments with a Native API mode of Windows. Native mode is a mode, where chkdsk starts at the boot time before login screen appears. It is used by chkdsk utility to check and correct errors in the system partition. The Native mode itself is a blue screen (it is blue in Windows XP, another color in other versions of Windows), which appears before the Windows login screen. See the image (click the picture to zoom it):
Windows XP Native mode. Native shell application is running.
The program is a shell (a command line interface). It can perform some basic operations with Windows files and directories. Program runs before starting of main Windows components, so we have access to the entire file system and registry without many restrictions. All operations are implemented through the Native API (ntdll.dll).