Manual:$IP

Setting this variable was neccessary to run older versions of MediaWiki. However at least since MediaWiki 1.18, setting $IP in LocalSettings.php is no longer needed.

Details
IP stands for Install Path. The variable holds the local file path to the base installation of your wiki. Make sure you refer to the fully qualified file path. Do not include a slash at the end of the path.

The 'DefaultSettings.php' file gets loaded from the directory designated by the IP variable.

Unlike other variables, that setting is not found in DefaultSettings.php, it must be set in LocalSettings.php before DefaultSettings.php is loaded. This is one of the few settings (along with the DB settings) that must be set in order for MediaWiki to run.