Search Engine Optimization is making your site optimally found by the search engines. Generally this is included in the web development process since putting your business online, beautiful as it may be, needs to be found to be effective.

SEO is a combination of coding (meta-tags, keywords and descriptions) text editing, and 'inbound links'. Google has a ranking system based on how many sites link to yours, and who they are. (If the New York Times links to your site, it carries more weight than your uncle with a fishing tackle shop does - unless of course you're in the fishing tackle business. Then it becomes relevant, though most likely still not as important as a mention in the Times.)