It's when the seller--the owner--acts as the bank.
Example: Seller A wants to sell his property. Generally (though not always) the seller needs to own the property free and clear. Buyer B comes along and wants to buy. However, for some reason Buyer B can't or doesn't want to get a mortgage from a bank. Maybe Buyer B's credit isn't good enough. Or maybe Buyer B doesn't like banks.
In this case, Seller A says: "You don't have to go to a bank and get a mortgage. Here's what I'll do. You make payments to me, instead. I'll transfer the deed over to you, just as if you'd used a bank. But you'll pay me, not the bank." Seller A and Buyer B work out the terms--how long the loan is for, how much the loan is for, and what the interest rate is. They go to a lawyer to finalize everything. And from that point on, Buyer B owns the house and is making payments to Seller A. If Buyer B stops paying, then Seller A--just like a bank--can foreclose.
If you're the seller, there are a number of similar arrangements that can protect you better--contract for deed, for instance. A lawyer can advise you on what your best choices are.
Hope that helps.