When green-minded groups conduct environmentally friendly projects to reduce the amount of greenhouse gas released in the atmosphere, they may take note of how much they are benefiting the environment.
For instance, when a group conserves energy by generating electricity from windmills instead of by burning coal, they can keep track of what harm would have been done if they had burned coal instead.
Carbon offsets represent the fruit of their labors — how much greenhouse gas hasn’t been released into the atmosphere as a result of their environmental projects. The offsets are measured by the metric ton (about 2204 pounds), so if a group prevented 2,204 pounds of gas from being released into the atmosphere, they can sell the "rights" to that labor to someone else.
A company that produces carbon dioxide in its business — a rental car company, say — can purchase an offset credit from one of these environmental groups, or from the offset retailers that purvey them, allowing the environmentally friendly work to offset whatever damage their business would have done.