Internet Tethering is a process of using mobile device to gain internet access on another device. For example you can connect your laptop or PDA to iphone to gain internet access via USB or Bluetooth, using mobile phone as a modem.
Basic idea is that you can hook your device (laptop) to the phone device, so your internet enabled phone can be used as a wireless modem.
Tethering can be done through either with cables (such as USB) or wirelessly using Bluetooth wireless technology. Wireless tethering through bluetooth has largely replaced cable tethering, since most cell phones are bluetooth-enabled.