Overclocking is running your CPU at a faster speed than it was sold at. For example you can buy a 1 GHz Athlon and with overclocking you might be able to make it run at 1.2 GHz.
Typically you shouldn't expect more than a 20% overclock, however some chips can go to 50% faster or more.
Overclocking is for computer enthusiasts who want to run their computer as fast as possible. Years ago when computers were agonizingly slow, overclocking allowed a reasonable boost to speed. Now many people don't need any more speed. Thus they often buy a cheaper (slower) processor and then overclock it to about the speed of a top-of-the-line processor; it saves money.
Overclocking can permantently damage a processor, so you also need to make certain that your processor won't overheat. Many overclockers will purchase the bigest heat sink and biggest fan available to allow a large overclock.
Yes AMD chips can be overclocked.