Regional Lockout is a practice used by media distribution companies to control the sales of DVDs and games internationally. This is usually implemented through a chip or code in the player or console that checks the disk or cartridge for a specific code will refuse to play it if the code doesn't match.
The first system to use a lockout system was the Nintendo Entertainment System (NES). The NES used a chip called 10NES to not only prevent it from playing games released on the Japanese Famicom, but also enforced only allowing games approved by Nintendo to be playable. Though some people found ways of getting around the chip or copying it. Most cartridge-based systems that used a lockout system used chips much like this. Disk-based consoles and DVD players have region codes written on the individual disks.
The various purposes of using region coding include price control, content control, and scheduled releases. Because different countries have different economies, not everyone is as willing to pay the same as anywhere else. So countries that are generally poorer or have a lesser interest in these forms of media sell them at a lower price, but if these weren't region coded, someone could import them cheap. Different countries also have differences in what's appropriate and rate them differently. Region coding ensures that in a more strict country, such as Australia, certain media is only available in an edited form or not at all to avoid legal problems.
Region coding, in summary, is used to prevent certain inappropriate content from being distributed where it is unwelcome and can make sure the companies are able to make a profit.
Closed Borders and Open Secrets
The Infamous Lockout Chip