Most computer systems (and particularly Windows ones) suffer from fragmentation of the files stored on your hard disk. Rather than being stored in one contiguous file, each of your documents, folders and system files could be split into a number of segments and stored on different parts of the disk. This all means that the hard disk has to physically move around a lot more to read the file, which can slow things down considerably. This is a problem that tends to get only worse as time goes on.
Defragmentation' refers to the process of rearranging the files on the disk such that each file is physically stored as one contiguous stream.
Depending on a range of factors, this process can take some time (possibly a few hours), and whilst you can possibly work on it at the same time, I would recommend that you just leave it to churn away.