In short, building a website so search engines will 'present' your website to the right audience. This is achieved by applying keywords to the content and the meta data, correct use of headers and page titles and much more. Search engines like Google, Yahoo and Bing look for this data to understand a website. Because this in 'built in' to a website it's called On-site Search Engine Optimization.
Any marketing strategy to help gain online visibility or to drive traffic to your website is considered Off-site SEO, including; citations, social networks, advertising, link building, blogging, Pay Per Click Campaigns (PPC), email broadcasting, traditional media, (print advertising, TV) and so on.