Having "two sets of books" means that a company maintains two different records of financial information. One set are the fraudulent books, which are used by external users. The second set are for use within the company and the accurate depiction of the company's current financial status.
Keeping "two sets of books" does not always refer to an illegal practice. Most publicly traded companies use this practice and it is legal. They abide by the rules set by the Federal Accounting Standards Board, or the FASB, when preparing financial statements and abide by the Internal Revenue Code when preparing tax returns. The goal here is to maximize income for the financial statements, so when investors see them they would be intrigued to invest. On the other hand, the company wants to have a lower income on the tax returns, so they do not have to pay high taxes. The practice is perfectly legal.
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