Subdivision is the process of cutting a model's polygons into more polygons while retaining the shape of the model. An artist uses subdivision to make the model appear smoother, or to create more polygons for further modeling of fine details
Most 3D applications have automatic subdivision tools. It is a common practice for an artist to create a model with the lowest amount of detail possible, and then use subdivision to smooth it out.
Low-polygon 3D model before and after subdivision
Subdivision works best on models made with quads (four-sided polygons) and triangles (three-sided polygons, or faces). Subdivision works erratically on polygons with more than four sides.