A hydrocolloid is defined as a colloid system wherein the colloid particles are dispersed in water. A hydrocolloid has colloid particles spread throughout water and depending on the quantity of water available can take on different states, e.g., gel or sol (liquid). Hydrocolloids can be either irreversible (single-state) or reversible. For example, agar, a reversible hydrocolloid of seaweed extract, can exist in a gel and sol state, and alternate between states with the addition or elimination of heat.

Many hydrocolloids are derived from natural sources. For example, carrageenan is extracted from seaweed, gelatin has bovine (cow) and fish origins, and pectin is extracted from citrus peel and apple pomace.

Jell-O (trade mark Jell-O), the well-known dessert, is made from gelatin powder, another effective hydrocolloid. Hydrocolloids are employed in food mainly to influence texture or viscosity (e.g., a sauce). Hydrocolloids are also used in skin-care and wound-dressing.

****more simply put they are substances that form gels when in contact with water.

Here is a link to recipes for the curious minded, it was put together by a fantastic blog on the subject known as Khymos:

Hydrocolloid Recipe Collection