Refers to a situation where a number of individuals are all free to make use of some sort of common resource, where if each individual tries to get their own maximum gain, the resource is exhausted or destroyed, but if each took into account the good of all individuals and limited use to a fair amount, the resource would stay around and be useful.

The hypothetical situation normally used to describe it is a field that a number of shepherds can use for grazing their sheep. If all the shepherds decide to get as much as they can out of it as quickly as possible, the land will be crowded with sheep who will soon overgraze the land, rendering it useless for future grazing - but if they limited use of that field, it would stay around and be useful.

It is often an argument for managment of community resources - for example, government regulation of pollution (usage of community resources like land and water). Because without it being managed, it is almost a race between all involved to get as much out of it as quicky as they can, before someone else gets to it.

All it takes is one individual entity to go for the maximum personal gains to destroy the balance.

It demonstrates problems with both communism and laissez-faire capitalism. Communism, because any selfish individuals ruin the balance, and laissez-faire capitalism, because a lack of regulation results in a race to take as much as possible as quickly as possible without regard for anyone else.