When you speak or write in the third person, you're talking about someone else, rather than speaking about yourself or directly addressing someone. Third person pronouns include "she," "he," and "they."
When a story is told in the third person, it takes the viewpoint of the people being described. This kind of narration is sometimes omniscient, with the narrator being able to see each character's inner thoughts. E.B. White's Charlotte's Web is written in the third person, a point of view that's clear from its first line: "'Where's Papa going with that ax?' said Fern to her mother as they were setting the table for breakfast."