To thicken a liquid by heating it so that some water evaporates away, leaving the body of the liquid thicker.
Unless otherwise specified, it means to do so with a quick boil. This is usually only expedient, as this kind of futzing usually has to go on at the stove while everything else is just about ready and just waiting on the sauce that you are reducing. And, unless otherwise specified, you are usually aiming to reduce the volume of the liquid by half.
Reducing a liquid also concentrates the flavour. Be careful not to walk away though and forget about it while it is boiling like crazy, or you will reduce it to charred gunge at the bottom of the pan.