Basically its making hardware run faster than it was destined to originally do by the manufacturer.
As most hardware these days to lower cost, are built from the same type of chips, and just lowered down in speed (i.e most video cards), overclocking them unlocks the potential, you are paying 100's more for with higher clocked hardware.
So, doing so, you are saving A LOT of money. There are risks involved of course, but if you are careful, and have some idea what you are doing, the results can be spectacular.
Abit IP35 Pro / Q6600 G0 / Zalman 9700 / 8800GTS 640mb / 4x 2GB Corsair XMS / X-FI Xtreme M / 1x 1TB / Antec 900 / Logitech Z-5500 / Samsung 20inch