ActiveRecord is commonly referred to as an ORM, or Object Relational Mapper. It maps attributes from your objects to columns on a database table. In addition to this mapping, ActiveRecord provides many convenience methods for listing what tables are related. We do this by calling class methods inherited from ActiveRecord::Base.
has_many
has_one
belongs_to
has_and_belongs_to_many
Each of these methods can take an options hash to help ActiveRecord work with your database. They also add many convenience methods that make working with a model, and their associated objects much easier.
More on Associations can be found on the Rails Guides