It refers to exchanging currencies from that of one country or state to that of another, where they use different currencies.
For instance it could refer to turning US dollars into UK pounds, or Swiss francs into Euros and so on and so forth.
In order to make foreign exchange possible, then the relative worth of a currency against another must be agreed upon before the transaction. This is the so-called exchange rate and it changes all the time.
For instance, if you went to foreign exchange pounds into euros today and tomorrow, then you will probably be offered different rates each time. If you don't agree to the rate, then you don't make the exchange.
Because rates change, then there is a whole market in foreign exchange about what will happen to rates in the future, and indeed a foreign exchange forward market and currency futures market exist.
Related ArticlesEasy money
Lender of last resort