CAPTCHA stands for Completely Automated Public Turing Test to tell Computers and Humans Apart.
Captcha is used to stop spammers to your website. It stops the bots to enter some thing in your site. For example auto comments on blog posts. Captcha gives you image of text and you have to enter the text as it is in the text box. This text is only readable by human because it is in graphic form. So bots cannot read it. Human can only enter the validation text and do some thing they want from the website.