gc1282 - what it basically means (as I understand it) is that their must be a UK contact for the domain name/site, and the site will have UK law applied to it (fraud, discrimination, libel/slander, security, trading standards and consumer law, etc.).
So an American will be able to own the domain or site, but contact information for the domain name must be in the UK. Any site site developed, whether owned by someone resident in the UK or not, will be liable for civil legal action through the UK courts for breeches of UK law.
Hope this helps.
(By the way UK law is actually 3 legal systems, that of 1) England & Wales, 2) Scotland, and 3) Northern Ireland - you didn't expect us Brits to do things the easy way did you? :O )