It's the effect that people get when they believe they should get one.
Basically, it comes from the expectation that something good should happen.
There was an experiment once, where they wanted to determine if the level of light over the work area could effect production. They went into the area and changed the light bulbs to a higher wattage. Work production increased. Ahha! they thought. Higher light increases production. Then they went in and changed the light bulbs back to the original ones. You might think that production dropped, but in fact it increased again.
The people were reacting to the attention they were getting. The feeling that someone was paying attention to them increased their production.
So, the placebo effect is one that we perceive someone is concerned about us, and the "medication" we are getting should make us feel better. And it often does, even if there is no medication in the pill.
A company researching a new medication would want to give a placebo to a group of people they were testing to ensure that it was their medication and not the "placebo effect" that was causing the improvement.