The term refers to the practice of adding unboiled hops to the wort/beer at any point after it has been cooled. It is more akin to steeping than anything else. Since this method involves no heat, it extracts no bitterness; it is solely for the purpose of adding more hop aromas and flavors to the beer. Though this is the conventional wisdom among brewers, some bitterness from dry hopping may be possible in some situations. Alpha acid is not soluble in water at room temperature, but it is in ethanol. A strong beer that has already fermented may be able to take on more bitterness. A few brewers have reported good results, but more research is needed on this topic.
For home brewers; dry hopping is often used to fix a batch that went wrong. If after primary fermentation; there is a lack of hoppieness or a flavor of tannins that needs covering, dry hopping can save or at lest improve the final beer.
The standard dry-hopping method is to add hops to the beer once it has finished fermenting, and has been transferred off of the yeast (racking). When hopping takes place after the fermentation, none of the aroma will be lost with escaping CO2. The amount of time a beer spends dry-hopping varies depending on the beer style, but 1-2 weeks is typically adequate. The quantity of hops added is generally similar to that of finishing hops in a boil, but this depends on the desired results. Though not common practices; some people add the hops when bottling. Some brewers steam the hops before adding them to the beer to avoid any possibility of contamination, though this is a very unlikely problem, due to the properties of hops.