Voronoi diagram of a set of "sites" (points) is a collection of regions that divide up the plane. Each region corresponds to one of the sites, and all the points in one region are closer to the corresponding site than to any other site.
All of the Voronoi regions are convex polygons. Some of them are infinite -- these correspond to the sites on the convex hull. The boundary between two adjacent regions is a line segment, and the line that contains it is the perpendicular bisector of the segment joining the two sites. Usually, Voronoi regions meet three at at time at Voronoi points. If three sites determine Voronoi regions that meet at a Voronoi point, the circle through those three sites is centered at that Voronoi point, and there are no other sites in the circle.
So how would this be useful for solving, say Knuth's Post Office Problem? Suppose we had the Voronoi diagram of the post office locations. Then the find the closest post office to a given house, all we need to do is figure out which Voronoi region the house is in. This is an example of the "point location" problem.
Once we have the Voronoi diagram, we can solve the post office problem as follows. (This is not the best solution, but it's reasonably simple.) Draw a vertical line through each of the Voronoi points. These lines split the plane into vertical slabs. To locate a point p, first do a binary search to find the slab containing p. Within each slab, there are no Voronoi points, so the Voronoi edges that cross each slab do so nicely. To find the Voronoi region containing p, we just do another binary search, this time on the spaces between the Voronoi edges in our slab. Altogether, the search takes O(log n) steps, where n is the number of sites.
Now let's look at the toxic waste dump problem. You are given n points in the plane, representing cities, and you want to put a toxic waste dump as far from the cities as possible. Obviously, the best solution is to put the dump far away from ALL the points, but to make the problem interesting, let's suppose we have to put the dump inside the convex hull of the points. With this contraint, the best place to put the waste dump is either (1) on a Voronoi vertex, or (2) on the midpoint of a convex hull edge, which must be on a Voronoi edge.