The word kneading means to work dough, usually by hand, for the purpose of developing the glutens in the flour, which is what gives baked goods their structure and texture.
When making dough, the flour and other dry ingredients are combined with the wet ingredients, usually warm water, along with yeast and sugar, until a sticky mass forms. This sticky mass is then kneaded until it forms a smooth ball with an elastic texture.
The usual technique for kneading involves taking the dough on a flat surface and pressing it with the heel of the hand in a sort of forward rolling motion, then rotating it and repeating. The dough is thus both squeezed and stretched. It is this squeezing and stretching that develops the gluten molecules.
It helps to lightly flour both your work surface and your hands to prevent the dough from sticking. Bread dough usually needs to be kneaded for 8 to 10 minutes. Too little kneading will produce a bread that's too dense, and too much kneading will make the finished bread too hard.
After kneading, the dough is left to rise, and then baked.
The process of working the dough to develop the glutens can be accomplished by a machine, either using the dough hook attachment on a stand mixer, or in a food processor. But the word kneading is generally only used to refer to the act of working the dough by hand.