Let me try and explain Search Engine Optimization in as simplified a way as I possibly can. You see, the objective of any webmaster is to gain as much traffic/visitors as possible to his website which hopefully would result into sales and hence profit.

There are many sources of traffic e.g. traffic exchanges, classified ads, solo ads, ezines, forum, social sites, search engines (Pay per click - PPC and organic - free), articles, directories, etc. Of all these, traffic from search engines account for almost 90% of available traffic. Amongst the search engines, google is the most predominant, accounting for almost 60% of all traffic. What can you deduce from the above?

That any internet marketer who wants to be successful must pay attention to the search engines, especially google. Another reason why, is that most traffic from this source (excepting pay per click) is actually more or less free if you do not cost the effort you put into search engine optimization. It is the type of traffic that is ultimately sustainable as you can gain some traffic from paid means but want to gradually wind down on this source as you get to gain more and more organic (free) traffic from the search engines. The search engines crawl most sites on the internet looking to "feature" or "display" the most relevant and important sites for each search term or what is popularly called keywords, keyword phrases, long tail keywords.

The search engines feature sites based on relevance and importance. The importance of each site to the search engines is determined by various algorithms amongst which is number and importance of backlinks from other sites. Hence one reason why webmasters strive to get as much backlinks as possible.

The relevance of each site for each search term, to the search engines is determined amongst other things by the position, number etc of the search term or its various similarities on the site. The issue now is, each webmaster tries to strategically position himself ready for the search engines by using "relevant" keywords phrases such that by the time the search engines are triggered by prospective visitors searching for one thing or the other on the internet, your site will "come up for mentioning" and thereby you stand the chance of having visitors and ultimately making sales and eventually profit.

It is like displaying items for sale in a supermarket, in this case, the search engines. More also like the stock exchange where buyers and sellers meet, through their agents. The act of inserting relevant keywords and at strategic positions into your various sites(including blogs) and ads such as articles, classified ads etc is one aspect of Search Engine Optimisation(on site) while the other type is offsite and includes gaining backlinks through various means such as forum marketing, directory submissions, article submissions, social bookmarking etc

In summary, all acts you carry out with a view to "courting" the "beautiful bride" - search engines (google most prevalent) by meeting their terms of "relevant and important", are regarded as optimizing for the search engines or more popularly, search engine optimization. Note that this is a means to an end and not an end in itself as your main objective is eventual traffic, sales and profit.