From my experience, it looks like the first answer was correct.
Short sales are becoming more prevalent because so many people have refinanced their homes, and then were still unable to make ends meet. They may have even declared bankruptcy and still find themselves unable to make the required payments, so they still become vulnerable to foreclosure.
To avoid foreclosure, these folks may attempt to sell their home.
No one will buy it because it is priced too high for its condition and/or there no equity in the home (generally the home has been on the market for months by this time). The unpaid mortgage payments continue to pile up as the house sits on the market becoming less and less enticing to buyers.
The creditors will give no mercy to the person in debt, and will not negotiate with them directly. That is when they may make contact with a third-party agent who is willing to negotiate with their creditors and/or fix-up the property (fire damaged or whatever). The short sale agent attempts to reduce the overall cost of the home to a buyable level for you, keeping the seller from getting a foreclosure on their credit, while saving the bank from losing their entire outstanding balance amount through the foreclosure and bankruptcy processes. Once the bank gets through the foreclosure process, they price the property higher to recoup their costs.
Mitigating is a frustrating, tedious, and time-consuming endeavor to make the price of the home less severe.