NEM stands for Normal-European-Modelling standards. NEM standards are decided and maintained by an organisation called MOROP which was formed in the mid-1950s and is made up of numerous model railway associations and enthusiasts throughout Europe.
A standardisation of the model railway industry was needed in the 1950s because around that time there were so many manufacturers producing model railways that compatibility between their products became a problem. The NEM universal standards allowed manufacturers to produce models, track and scenery that fitted with each other which was beneficial to both customer and producer.
NEM standards cover areas such as scale, radii, wheel profile, coupling design and electronics. In more recent years MOROP's NEM standards have been instrumental in harmonising the design specifications for DCC throughout not only Europe but the US too by working with their American counterparts, the NMRA.
NEM standards are also responsible for determining where any acceptable compromise should lie regarding areas of a model that can't be recreated while still working effectively in miniature, this includes areas such as wheel flanges and a track's rail height.
So it's with great thanks to the NEM standards that today, we can enjoy a layout with PECO track, Hornby points, Heljan locos, Bachmann coaches, couplings from Kadee and a smoke generator from Seuthe.