Hydrostatic lock, hydraulic lock or hydrolock happens when water (or another liquid) enters an engine cylinder. This usually happens when the vehicle is driven through enough water to have it sucked up via the air intake. Combustion engines compress a gas/air mixture. Liquids are not compressible, not easily compressible anyway (thanks Shro0my). This creates a destructively large pressure when a combustion engine attempts to compress water.
A hydrolock will bend and break pistons, rods, crankshafts and ruin bearings. A cracking of the engine block and cylinder heads can also result.
The best way to prevent your engine from being hydrolocked is to not drive in deep amounts of water. If you car is lowered or your engine draws air from a very low location, you can add a bypass valve between your air filter and throttle body. stupot would like to point out that some trucks have a deep water air snorkel fitted to their air intake and that Renault once had a car that had a low enough air intake that it would hydrolock going through puddles. jarsyl would like to point out that the same vehicles with air snorkles have exhaust snorkles as well. It would be also possible for an engine to intake water via the exhaust.