Overclocking lets the processor run at a faster speed. For example, the i5-2500K comes with a stock speed of 3.3GHz. To overclock, you reboot the computer, and enter the BIOS. Then, you just change the multiplier, which translates into a higher clock speed. You can easily go to 4.5GHz. You do see some performance gains. However, you need specific equipment:
An unlocked CPU(has a K at the end)
A specific motherboard chipset (P67, Z68, Z77, etc.)
Good cooling(Doesn't have to be liquid)
It's fun, and if you follow tutorials closely, and don't deviate, you'll be good. However, if you go crazy and overclock like crazy, you can potentially shorten your CPU's lifespan.