Kaolin is a type of clay or to be precise, a naturally occurring hydrous aluminum silicate. When you hear clay, you probably think of a muddy greenish-black mess, but that one is bentonite, and this one is a fine, white powder. It is so white that it's also often used, in small amounts, as a helper ingredient to give opacity and whiteness to the cosmetic formulas.
As a clay, it's absorbent and can suck up excess sebum and gunk from your skin, but less so than the more aggressive bentonite. As it's less absorbent, it's also less drying and gentler on the skin, so it's ideal for dry and sensitive skin types.