It allows people to 'share traffic' by displaying something like ads for others and the other person doing the same for you. It is also where you sell products through another affiliate. You need a blog/website for this to happen as this means you put up banners, links, etc.
It's official definition in Wikipedia:
Affiliate marketing is a marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's marketing efforts.
