Clickz has a Segmentation Primer which helps define what segmentation is in relevance to web analytics.

The important takeaway is that the purpose of segmentation is to take ACTION from the data after segmenting people into groups. There’s really no point in needing segmentation or creating user segments if you’re not going to do anything with the data. It can be a very valuable process and is a very insightful part of some web analytics applications IF it is used to help create action points from the data.