Affiliate marketing is a concept where in a company pays its affiliates a certain amount for bringing a customer to the company. It is a marketing tool used to increase the sales of a the main company's products or services. The affiliate is paid for helping to facilitate these sales to the end user.
Imagine if we have Company A, Affiliate B, and the Customer C. C is looking around online and notices a banner ad on B's website. The banner ad is a marketing tool of A, who is selling some sort of product or service. A has contracted with B in order to have their advertisement on B's website, where it will hopefully be seen by C. When C clicks on the banner, they are redirected to A's website, or a place where they can purchase A's products. B is then paid an agreed-upon amount of money, and may be further compensated if C makes a purchase from A.
This is one of the central ways that many websites make money online. They sell advertising space, and get a certain amount just for having the ad on their website. But they also make money every time a visitor to their site clicks on one of those ads, and is sent to one of those sponsors. The sponsor makes money, hopefully, because the customer will make a purchase or sign up for a service. The customer benefits because they are exposed to new products and services from the sponsoring company. And the affiliate website makes money as well.
When done properly, it is a win-win-win scenario! Affiliate marketing is primarily seen online, though any form of advertising in a third party's publication, such as a magazine, is closely related. Online, it is primarily seen in the cost per click setup, where the advertiser pays the affiliate a certain amount every time their advertisement is clicked. A cost per sale mechanic is also not uncommon, where the affiliate will be further rewarded for every sale made after the initial click. Amazon is one of the leaders in affiliate marketing and has even registered patents on the concept. It is one of the reasons that Amazon grew to be a very large and profitable company. Their affiliates could link to products or to Amazon itself, and be rewarded every time a visitor came from the affiliate site. This greatly increased Amazon's traffic.