Biofuels are fuels that are produced from biological sources such as trees, plants or micro-organisms. They are carbon neutral, because they do not result in fossil carbon being released into the atmosphere. All of the carbon contained in a biofuel was absorbed from the atmosphere by photosynthesis in plants, just a few months or years earlier.
This means that when you burn a biofuel, you simply release the carbon back into the atmosphere, and have no overall effect on atmospheric CO2 levels. In contrast, fossil fuels contain carbon that has been locked up underground for millions of years. Burning a fossil fuel increases the level of CO2 in the atmosphere, but it is not balanced out by photosynthesis. The three biofuels which are most widely used are bioethanol, biodiesel and wood.