PHP is a general-purpose scripting language. It is most commonly used, however, to generate dynamic web content. Web server files contain pieces of PHP code interspersed among fragments of static HTML. When a web request is made, a PHP-enabled web server (such as Apache) processes the appropriate files and returns the resulting web page to the client.
The dynamic capabilities of a language like PHP represented a big improvement over the earlier, strictly static web. These days, however, it is common to use a web framework to neatly separate code from content, user interface from admin tools, etc. In fact, tedm.us, was coded in PHP in a previous life… but was later reborn in Python courtesy of the Django web framework. ☺