I've heard this term referred to when one sleeps but I know it's also referred to something else. I know it has something to do with the choices we make but I can't remember exactly in what context…?

Little Death

Cowards die many times before their deaths;

: : The valiant never taste of death but once.

: : Of all the wonders that I yet have heard,

: : It seems to me most strange that men should fear;

: : Seeing that death, a necessary end,

: : Will come when it will come.

: : Julius Caesar II, Shakespeare

http://www.phrases.org.uk/bulletin_board/7/messages/550.html

The little death is a translation from the French "la petite mort," a popular reference for a sexual orgasm. The term has generally been interpreted to describe the post-orgasmic fainting spells[1] some lovers experience. Also, it can refer to the spiritual release that comes with orgasm, or a short period of melancholy or transcendence, as a result of the expenditure or spending of "life force".

Speculations about the origin of the expression include current connotations of the phrase, including to sleep

http://encyclopedia.thefreedictionary.com/Little death

Often it is a slang term for orgasm. I found this definition with the help of google.

An euphemism denoting orgasm as used by Korn in "Last Legal Drug" song. The Little Death is a translation of the French "Le Petit Mort", meaning "a little/small death", since some women seem to faint or they really do while experiencing an orgasm which makes them look like dead for a while.

Sexual orgasm.

http://en.wikipedia.org/wiki/The_little_death

Or are you talking about DUNE by Frank Herbert

Dune. The Fear Litany:

I must not fear.

Fear is the mind killer.

Fear is the little death that brings total

obliteration.

I will face my fear.

I will permit it to pass over me and through me.

And when it has gone past

I will turn my inner eye to see it's path.

Where the fear has gone there will be nothing.

Only I will remain.

In this case "Fear" is the "little death".

http://www.gather.com/viewArticle.jsp?articleId=281474977303214&grpId=3659174697241355&nav=Groupspace

Le Petit Morte, or "The Little Death" is what the French call the orgasm.

It is a metaphor for an orgasm.