Partitioning is the database process or method where very large tables and indexes are divided in multiple smaller and manageable parts. SQL Server 2005 allows to partition tables using defined ranges and also provides management features and tools to keep partition tables in optimal performance.
Tables are partition based on column which will be used for partitioning and the ranges associated to each partition. Example of this column will be incremental identity column, which can be partitioned in different ranges. Different ranges can be on different partitions, different partition can be on different filegroups, and different partition can be on different hard drive disk to improve performance.
Partitions can be set up very easily using schemes and functions as well can manage very easily humongous tables separate indexes for each partition. This will lead to high performance gain. Partitioning can increase performance when hard disk speed is performance bottleneck, if CPU or RAM is bottleneck partitioning will not help much.
Reference : Pinal Dave (http://blog.SQLAuthority.com)