DVD Upscaling is the process of taking a standard DVD picture and upscaling the resolution to HD resolution (720p or 1080i/p). Some standalone DVD and Blu-ray/HD DVD players will include an upscaler to upscale DVD playback for HD displays.
When a DVD is played back at standard resolutions on a HD panel, the panel's internal circuitry will upscale the DVD picture (usually 480 or 576 lines) to the panel's native resolution (for HD, it is 720 or 1080 lines). However, the panel's upscaler may only perform the most simple method of upscaling, which makes the picture look blurry and lacking in definition.
DVD upscalers will employ special techniques (for example, sharpening filters) to upscale the picture to HD resolution, so that the picture is comparable to a native HD stream if you do not look too closely. But because upscaling cannot create information that isn't already there in the original picture, the details that the upscaled image has cannot be compared to that of a real HD image.
For a visual example, please refer to this page. This visual example uses a HD still image to explain what happens when you playback a DVD without upscaling, with upscaling and also the playback of a native HD video on a HD panel.