A program running in a text terminal / console can manipulate the text displayed in its console in various ways (make text bold, move cursor, clear screen etc.). This is accomplished by printing special character sequences, called "escape sequences" (because they usually start with Escape, ASCII 27).
If stdout goes to a terminal which understands these escape sequences, the display of the terminal will change accordingly.
If you redirect stdout to a file, the escape sequences will appear in the file (which is usually not what you want).
There is no complete standard for escape sequences, but most terminals use the sequences introduced by VT100, with many extensions. This is what most terminals under Unix/Linux (xterm, rxvt, konsole) and others like PuTTY understand.
In practice, you would not directly hardcode escape sequences into your software (though you could), but use a library to print them, such as ncurses or GNU readline mentioned above. This allows compatibility with different terminal types.