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Debt consolidation refers to the process of taking a variety of debts (usually at high interest) and combining them all into one.
These debts are usually things like credit cards and other balances carried at excessive interest rates, and the single loan to replace them is usually at a low (or at least lower) interest rate. The reduced interest reduces the cost of carrying the debt, and the single loan adds the convenience of not needing to make bill payments to as many lenders.
Debt consolidation is usually worth considering when you are dealing with multiple unsecured debts, things like credit cards or medical bills. A consolidation loan will typically be secured, which means it should have a lower interest rate than the unsecured debts - which creates savings for the person consolidating on the balance carried.
There are consolidation programs and loans out there that are unsecured (don't require collateral) - however the savings are not usually as significant, because the interest rate on the unsecured loan will be higher.
While the process of consolidating your debts need not be managed by someone else (other than a new loan provider), there are plenty of businesses that offer debt management programs, and lots of people opt to use such a service rather than take it on alone.
While some companies will decrease your debt burden by reducing what's owed to your creditors - this is in reality debt settlement, despite the fact people regularly confuse it with consolidation. Debt settlement is a popular alternative to consolidating, but has a bigger impact on your credit because a very different approach is taken.
If you are paying high interest on things like medical bills, credit cards, or most any other unsecured loans; consolidation is worth considering if you can qualify for a good loan. The lowered interest rates should allow you to lower your payments while paying down your debts faster. Combined with responsible credit management after the fact, it's a great way to get out of debt.