Compiled Languages
The language in which you write an application is not actually something that your computer understands. Your code needs to be translated into bits and bytes that can be executed by your computer. This process of translation is called compilation, and any language that requires compilation is referred to as a compiled language. Examples of compiled languages include C, C#, and Java.
For a compiled language, the actual compilation is the final step in the development process. You invoke a compiler -- the software program that translates your final hand-written, human-readable code into machine-readable code -- and the compiler creates an executable file. This final product is then able to execute independently of the original source code.
Thus, if you make changes to your code, and you want those changes to be incorporated into the application, you must stop the running application, recompile it, then start the application again.
Scripting Languages
On the other hand, a scripting language such as Ruby, PHP, or Python, relies upon an application's source code all of the time. Scripting languages don't have a compiler or a compilation phase per se; instead, they use an interpreter -- a program that runs on the web server -- to translate hand-written code into machine-executable code on the fly. The link between the running application and your hand-crafted code is never severed, because that scripting code is translated every time it is invoked -- in other words, for every web page that your application renders.
As you might have gathered from the name, the use of an interpreter rather than a compiler is the major difference between a scripting language and a compiled language.