A load balancer is a device that acts as a reverse proxy and distributes network or
application traffic across a number of servers. Load balancers are used to
increase capacity (concurrent users) and reliability of applications. They
improve the overall performance of applications by decreasing the burden on
servers associated with managing and maintaining application and network
sessions, as well as by performing application-specific tasks.

Load balancers are generally grouped into two categories: Layer 4 and Layer
7. Layer 4 load balancers act upon data found in network and transport layer
protocols (IP, TCP, FTP, UDP). Layer 7 load balancers distribute requests based
upon data found in application layer protocols such as HTTP.

Requests are received by both types of load balancers and they are distributed
to a particular server based on a configured algorithm. Some industry standard
algorithms are:
1.  Round robin
2.  Weighted round robin
3.  Least connections
4.  Least response time

Layer 7 load balancers can further distribute requests based on application
specific data such as HTTP headers, cookies, or data within the application
message itself, such as the value of a specific parameter.
Load balancers ensure reliability and availability by monitoring the "health"
of applications and only sending requests to servers and applications that can
respond in a timely manner.

How Does Load Balancing Works?
The load balancing hardware is some place called 'load dispatcher' / 'network
dispatcher' or the 'load balancer'. The load balancing mechanism that is
employed for distributing service requests (HTTP, SSL, Mysql etc) is known as IP
Spraying. The IP sprayer picks up each services request, and redirects the
request to the appropriate server in the cluster based on the rules, providing
scalability, load balancing and fail-over requirements.
When a server group has multiple web servers and if their is high HTTP
traffic, a load balacning solution can evenly distributed the request to
multiple servers, while these servers appear as one web server to the web
client.



Article source:http://www.f5.com/glossary/load-balancer.html
Article source:http://www.brainpulse.com/web_hosting_india/load_balancing_servers.php