What is SEO?
Internet Marketing Dictionary | SEO - Search Engine Optimisation

SEO stands for Search Engine Optimisation and is the process of getting a website ranked highly in search results for keywords that are relevant to the underlying business. The reason it matters is that a high ranking web page, and especially one that ranks first, will attract a lot of traffic. By making sure your site ranks well for relevant keywords or search phrases you can then attract profitable traffic without paying for it.

When you do SEO work you must make sure you know which keywords are going to be searched on by your most profitable visitors. For example, if you sell savings accounts it may be that people searching using the term "savings accounts" are not as likely to open an account with you as people searching for "high interest savings accounts" in which case you will be wise to focus you SEO work on ranking well for that phrase rather than the former.

SEO as an activity divides into three separate processes.  First you need to analyse what search phrases or keywords you want to rank highly for.

Second you need to work on off-page factors. These are things such as getting links back to your site from other sites. These are called off-page factors because you can't make any changes to them by editing your own pages. Links to your site are very important because the search engines tend to treat a link to a site as a vote of confidence in the site. The more votes you get, the higher your site will rank.

If you get links from sites that themselves are already highly ranked then even better. Furthermore the wording of links makes a big difference. If links to your site include the keywords that you want to rank high for they will increase your chances. Links that just say things like "click here" are less effective.

On-page factors are those that you can control simply by editing your web pages directly. These include keyword density, which parts of the page are highlighted, what text is used to describe images etc.