It is an automation framework where test input and/or output values are read from data files. The different data files may include datapools, ODBC sources, csv files, Excel files, ADO objects, etc. The data is then loaded into variables in recorded or manually coded scripts.
In case of testing the login functionality for different User name/Password combinations, instead of having different user name/password combinations in variables like usr1, pwd1, usr2, pwd2, usr3, pwd3 etc we may just use one variable for the user name and one variable for password namely usr and pwd. The list of username and password may be stored in a datatable/excel sheet. The first set of data is read, and then the script is executed based on the input; now the second set of data is read, and then the script is executed based on the input; so on and so forth.