From Valve Developer Community
The VMT Editor is an engine tool originally released with the Source 2007 engine branch. This tool allows you to edit VMT properties while in-game with via a simplified interface that is both user friendly and real time. This heavily simplifies the material editing process as well. Previously users would need to edit the VMT outside of the engine, then go back in-game and reload all materials, or the current vmt. To use it, run your game or mod with -tools -nop4 on the command line and select Material Editor from the Tools menu. This tool is used to edit the material properties with the added advantage of faster, more robust interface than the typical text editor.