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Efficiency, in it's most broad sense, means total power in equals total power out.
Now, a gallon of gasoline has 1.8 x 10^24 Joules of energy, or something close and huge like that. But, since internal combustion engines are 18% efficient at the most, we don't see near that power. If the engine was 100% efficient, we would get 5 times the gas mileage and 5 times the power output. But much of that power gets converted into heat, taken up in friction, and generally sucked away.
You can't do much to increase the efficiency of the motor, running methanol would help since it doesn't burn as hot, ceramic engines would reduce friction...
Efficiency doesn't have anything more to do with gas mileage, power and torque than what I have mentioned.
Anyway... that is the fairly broad topic of engine efficiency. I'm sure someone will come in with finer details later.
-Jeff
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