Brief Answer:
Swelling of the end of the optic nerve due to high intracranial pressure.

Detailed Answer:
Papilledema is a sign which is noticed in the back of the eye when it is examined with an instrument called ophthalmoscope. At the back of the eye one can see the papilla, in the form of the disc, formed by the convergence of nerve fibers which leave the eye to enter the skull.

When there is raised pressure inside the skull, the papilla seems swollen (edema means swelling).

So any process which raises the pressure inside your skull produces papilledema. The papilledema doesn't indicate the cause it only indicates that the pressure is increased. In your case it indicates that the hydrocephalus you suffer from, is associated with high pressure.

I remain at your disposal for further questions, possibly reminding me as to the cause of your hydrocephalus and what did your doctors suggest about it.

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