Noise reduction system.  

Usually involves encoding the signal before the storage process and decoding after it has been read off the storage device.  Encoding involves compression, some equalization and splitting of the signal into several bands. 

Comes in several types, A, B, C, S & SR.  A is an older professional format, B, C & S are consumer formats for cassette and SR is the current professional standard. 

Dolby may also refer to an encoding system which permits the recording of 4 discrete channels on two audio tracks. 

Used in 35mm film as well as games, multimedia and home video systems.

see also
Noise reduction