Most of the detailing brands sell a product. Mothers has their california gold, that I have used and liked, Griots Garage (as McGintys924 mentioned) is a great brand, my current personal fav is Chemical Guys brand.
Essentially, you're taking a very viscous clay (very similar to modeling clay), spraying a lubricant onto the paint (a lot of the time, I do this while I'm hand-washing and just use clean, soapy water; other times I use spray detailer or dedicated clay bar lube) and running it across the paint. By doing this, the clay is picking up contaminants that have adhered/bonded to your paint's surface. You can hear the change in the paint and feel the difference after the clay has been used. -Very similar results to waxing, except instead of a layer of wax, smoothing out the surface making it very slick, you've removed the 'junk' that's embedded into your paint's surface, which causes it to feel rough or gritty.
I know when mine needs it by lightly passing a clean microfiber towel over the paint. If you can hear a "gritty" sound or there it is catching/snagging on the paint, even after a wash, it would benefit you to clay bar.
Here's a video by the chemical guys that does a much better job of explaining it, if you're interested:
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