The act of making a software package usable on one computer. Typically this involves copying files from installation media to the computer.
Brief history of software installation in PCs:
Back when hard disks started to get supplied with computers, the software makers made the software so that it could be installed in full to the hard disk - thus, there was no need to use the program from floppies. People thought this was pretty nice, because you no longer needed to swap disks, and programs loaded up much faster, too.
Then came the first problem: The amount of floppies used. Gradually 5.25" floppies were abandoned and programs came on high density 3.5" 1.44MB floppy disks. First, this was good because the 1440kB disks were thought to be really, really huge.
Later on, programs grew and grew. In the time when CD-ROMs became popular as installation media, games grew and grew - a typical game in 1993 was somewhere about 7 floppies, compressed. High compression + relatively slow processors + slow floppy drives = inconvinience. Plus, to be actually used, the whole app had to be copied on hard disk - not really nice, because people had found out that even the hard disks have limits in their sizes!
CD-ROMs came and fixed all this! I think the first Warcraft needed only 2 megabytes of hard disk space and installed fast - clearly an improvement over floppy games!
However, nowadays, CD-ROM drives are faster (still not as fast as hard disks, though) and need to be spin up for long time after long idles. Many game developers think this is the excuse to copy most of the game from CD-ROM to hard disk. Personally, I have a 10-gigabyte disk for Windows, haven't installed too many games to that, and it's almost full... Games on DVD-ROM are unlikely to fix this situation.