From The Official OAuth 1.0 Guide
The OAuth protocol enables websites or
applications (Consumers) to access
Protected Resources from a web service
(Service Provider) via an API, without
requiring Users to disclose their
Service Provider credentials to the
Consumers. More generally, OAuth
creates a freely-implementable and
generic methodology for API
authentication.
An example use case is allowing
printing service printer.example.com
(the Consumer), to access private
photos stored on photos.example.net
(the Service Provider) without
requiring Users to provide their
photos.example.net credentials to
printer.example.com.
OAuth does not require a specific user
interface or interaction pattern, nor
does it specify how Service Providers
authenticate Users, making the
protocol ideally suited for cases
where authentication credentials are
unavailable to the Consumer, such as
with OpenID.
OAuth aims to unify the experience and
implementation of delegated web
service authentication into a single,
community-driven protocol. OAuth
builds on existing protocols and best
practices that have been independently
implemented by various websites. An
open standard, supported by large and
small providers alike, promotes a
consistent and trusted experience for
both application developers and the
users of those applications.
To sum up what that said basically the user gives a username and password to for an OAuth request token. You give the service that wants to connect to something using OAuth the request token and they receive the access token. This makes it so that the service never sees/uses the username and password.