What is this?

I cannot break it/mine it, discovered it deep deep deep down.

 

This is called a Monster Spawner, it spawns mobs. They are found in dungeons. If you keep mining, you will break it eventually. They are put there to guard treasure chests, seeing as dungeons are quite rare, consider yourself quite lucky for finding one, raid the treasure after destroying it.

More info here: http://www.minecraftwiki.net/wiki/Monster_Spawner

 

placing a lit torch near the spawner will prevent mobs from spawning in that dungeon any further. and like the person above said, keep mining it and it will eventually break.

 

Correct, from the looks of it I think he has Peaceful on which is kinda cheating in a way. Still, it's his first Dungeon. Wonder what he got in the chests.

 

As stated above this is a monster spawner, dont kill it (because they can be destroyed) go on youtube and find some nice trap ideas. Like you can build traps around them so when they spawn it kills them and collects their items.