A steel is a long thin round rod, usually about a foot long, made of very hard steel. It is used to keep a sharp edge on a knife. The rod is attached to a handle which should have a guard to protect your hands from being slashed by overzealous steeling. A steel doesn't actually sharpen your knife, but hones it, which means it aligns the molecules (or something like that) so the knife will stay sharp.
To use a steel, drawing the entire length of the knife blade across the steel at a 20 to 30° angle, no more than 5 or 6 times on each side, before each use. If you do this religiously, your knife will remain in excellent condition forever, especially if it's a good quality knife. Investing in two or three good knives and a steel may seem extravagant, but properly cared for, these knives will last you for the rest of your life.
Should your knife get dull, it will need to be sharpened on a whetstone before it is honed with a steel.