So I’ve been studying this in college and didn't really know what it was. Wikipedia says it "is a form of internet marketing that seeks to     promote websites by increasing their visibility in search engine result pages (SERPs) through the use of search engine optimization, paid placement, contextual advertising, and paid inclusion."
So I asked myself exactly what does that mean?? Well I put together a little diagram to try and explain it for myself and hopefully it will help you too.
The diagram is based on Google's search options. The results window is always broken into three areas shown here. Certain areas you can pay for and others you can't. The one great thing about Google though is that each of the paid advertisements has to be relevant to the search to show up on the page. I think this is great number one for all the searchers out there as you get more access to relevant data and number two for the websites themselves as everyone has the chance to be viewed when relevant.
So that’s the search engine side of it. But for you budding website designers out there, do you know how to setup your website so it’s searchable??
Here's some basic do's and don'ts I’ve learnt:
Do's
- Make      your page as basic as possible without hindering the aesthetic view. What      do I mean? Check out this page looks good and it’s easily readable by a      search engine. http://uk.m.yahoo.com/
 - Ok if      you feel your page doesn't have enough colour or is a little too much text      then by all means throw in a few pics but remember to add an alt tag for      each pic with the content of what it is. Google searches text only it      can't read pics so adding the alt tag allows the picture to be searchable      too.
 - Another      great way is links. The more links you have for your page the better.      There are ways to get other websites to link to your page like registering      with yahoo or msn, sending press releases and ask major sites can you be a      featured or sponsored link on their page. The more links of your page out      there the higher Google ranks you.
 - Use      keywords. There are websites out there to suggest the best keywords to use      and wordtracker.com actually tells you which words are searched most and      how many links show up. So what do you do when you have them? Add them to      your Meta Keywords tag and then use them as much as possible in the text      of your webpage.
 
Don'ts
- Don't      use tons of flash media and images. Google can't read them, they take      forever to load and they don't work for text only pages that a blind      person is reading.
 - Don't      have your main page to text heavy either because once the reader clicks in      they want to find what they need straight away or they'll move on to the      next site.
 - Don't      hire an SEO company if you can't afford it, it's just as easy to do it yourself      if you just do a bit of research.
 - As for      your keywords, don't choose very general ones as they'll yield too many      results. Be a little selective without eliminating a huge market. And when      inputting them to your pages don’t overdo it with loads of words because      you can't deceive the user. You only have about 6 or 8 seconds to catch      the user’s attention so make sure their search recommends you for a      reason.
 
Here's a short video to demonstrate how to get started:
Hope this helps and I’d love your feedback and if I’ve missed something please add away through comments! :)


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