A refugium is an area that your display tank water flows through that contains items that help with biologic filtration of your water. This can include 'live' sand, rock and macroalgae (example..plants like mangroves or chaeto). They help you with the nitrogen cycle that is present because of fish waste. Think..plants grow better with fertilizer and aquatic plants get fertilized by fish 'poop'.
Another side benefit is that small creatures like copepods live in this 'fuge' and eventually float into your main tank and act as food for you tank inhabitants.
Most people have the refugium as part of their sump. There are several threads around that have pictures of sump/refugiums.
hope that helps.