What is a DMZ?

DMZ stands for demilitarized zone. DMZ is also known as perimeter network and is used for security purposes. A DMZ is that part of the network/subnet that sits between the organisations LAN and the Internet. The concept behind creating a DMZ is that m/c's from the Internet and the org's LAN can connect to DMZ, but the DMZ can only connect to the external network - i.e. the Internet.
This allows m/c's hosted in the DMZ to interact with the external network for services such as Email, Web and DNS. So even if a host in the DMZ is compromised, the internal network is still safe. Connections from the external network to the DMZ are usually controlled using port address translation (PAT).

A DMZ can be created by connecting each network to different ports of a single firewall (3-legged-firewall) or by having 2 firewalls and the area btw them as a DMZ.
In case of Enterprise Applications (3-layered), the webserver is placed in the DMZ. This protects the applications business logic and database from intruder attacks.