Foucault interprets sexuality as a social construction that has largely been used to bring the human body under tighter political control. We have come to see our sexuality as something buried deep within us, and as manifesting itself in all aspects of our life. This is the result of a long history that has associated sexuality with the need to confess, and has seen sex as a valuable social commodity.
For Foucault, power is not simply a repressive, law-like force that controls and prohibits. For Foucault, power is productive as well as repressive. Power does not just come from those in authority: it manifests itself in many different ways and from many different points at once. Power directs the transmission of knowledge and discourses and shapes our concepts and self-image.
Discourse is the context and manner in which words and ideas are exchanged. The significance of an idea largely depends on the context in which the idea is being discussed and what other ideas it is being related to. This wider context is what Foucault means when he talks about "discourse."
The repressive hypothesis is the argument that power has repressed sex for the past three hundred years. Since the rise of the bourgeoisie, sex has been condemned as a waste of energy. As a result, it has been repressed, silenced, and confined to reproductive purposes. According to this hypothesis, we can achieve political liberation and sexual liberation simultaneously if we free ourselves from this repression by talking openly about sex, and enjoying it more frequently. Foucault finds this hypothesis to be deeply flawed.