Segregated Witness (segwit) is an upgrade to the bitcoin consensus rules and network protocol, scheduled for implementation in the second half of 2016.

In cryptography, the term “witness” is used to describe a solution to a cryptographic puzzle. In bitcoin terms, the witness satisfies a cryptographic condition placed on a Unspent Transaction Output (UTXO).

In the context of bitcoin, a digital signature is one type of witness, but a witness is more broadly any solution that can satisfy the conditions imposed on a UTXO and unlock that UTXO for spending. The term “witness” is a more general term for an “unlocking script” or “scriptSig”.

Before segwit’s introduction, every input in a transaction was followed by the witness data that unlocked it. The witness data was embedded in the transaction as part of each input, The term segregated witness or segwit for short, simply means separating the signature or unlocking script of a specific output. Think “separate scriptSig”, or “separate signature” in the simplest form.

Segregated Witness therefore is an architectural change to bitcoin that aims to move the witness data from the scriptSig (unlocking script) field of a transaction into separate a witness data structure that accompanies a transaction. Clients may request transaction data with or without the accompanying witness data.

Source: Mastering Bitcoin – Unlocking digital currencies