It is a position that you take when you are selling an asset as you expect the price to go down, with the intention of buying it again at a lower price. It is mainly used in margin trading but largely across derivatives markets.
Traders open a short position in the hope that the price will go down in the future. E.g. If a trader, trading in the XRP/BTC pair, shorts 1000 XRP at 4x leverage. If the BTC equivalent of 1000 XRP is 0.09 BTC (considering XRP/BTC is at 0.00009000), then the exchange lends the trader 1000 XRP against a collateral of 0.0225 BTC.
The trader owes the 1000 XRP to the exchange and can return this obligation at a later time, by buying it at a lower price.