Generally, the traceroute utility uses either ICMP and/or UDP to identify and count the number of "hops" away a particular computer is on the network. By "hops," I mean the number of routers that connect the various networks that your traffic will cross on its journey to the destination.
The time that the utility reports is typically the round trip time -- meaning the time the packet took to get to the "hop" and back. This is also why you will typically get incremental increases in these hop times as you get closer to the destination system.
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