Incomplete dominance can arise when there are two alleles of a gene which result in distinctly different phenotypes. When they are both inherited together (one from the mother and one from the father) in an individual, the individual ends up with a blend of the two phenotypes.
For example, if one allele is for red hair and the other allele is for blue hair, then the individual will have purple hair. This is in contrast to codominance, where the individual would inherit patches of blue and patches of red hair.
From the science dictionary at http://biotech.icmb.utexas.edu/