In a web context, geolocation usually refers to a web site or web page's ability to find the user's geographic location (city zipcode, or even coordinate). Typically this is through the browser, although due to privacy concerns most browsers will ask the user if they want to share this information with the web page or site.
Alternative methods look at network identifiers (eg. wifi or ISP) to find the user's location. In the case of an ISP identifier, this can have a low (city or metro level) accuracy.
A website would typically use geolocation to provide contextual (ie. local) information. Alternatively at a larger scale a multinational company might use this information to direct the user to correct website for his/her country.
Web analysis tools (eg. Google Analytics) can also use geolocation to monitor where visitors are coming from - typically at the country or city level.