SEO simply stands for Search Engine Optimization. This is where you construct your web pages and implement certain techniques to help you rank as high as possible on search engine result pages (SERPs). The higher your pages can rank on Google/Bing/Yahoo/etc. results pages, the more traffic your site is likely to get.
Now, SEO can be split up into two separate categories; On-Page SEO & Off-Page SEO.
On-Page SEO refers to all the things that you can do ON your website to help you rank higher, such as page titles, internal linking, meta tags & descriptions, etc.
Off-Page SEO refers to all the things that you can do directly OFF your website to help you rank higher, such as social networking, article submission, forum & blog marketing, etc.