SEO stands for search engine optimisation and means just what it says.
Third party web developpers will optimise your website to ensure that the internet search engines such a google or yahoo can 'see' the site correctly and once they are able to see it then rank it according to several criteria that they use.
If your site ranks well with their criteria then they rank it higher in searches for the phrases that your seo team have optimised your site for.
For example if you run a carpet cleaning business, your site should have plenty of copy about carpet cleaning, lots of relevant links to other carpet cleaning related sites and solid site structure, and if someone types carpet cleaning hopefully your site will come up on the first page (if you have paid a fair bit of cash or just got lucky).
specific searches like carpet cleaners in york are cheaper to do than generics like carpet cleaning and are easier to obtain high rankings for.
But beware, SEO companies promise the earth and deliver very little.