In simple terms, you offer to "settle" the collection balance for some amount. As part of the settlement, you get the collection agency/junk debt buyer to completely remove their trade line from your credit report.
Getting the collection agent to completely remove any negative information from your credit report is highly recommended, as it will boost your score. You don't want the collection agency to simply put a "paid in collections" or "settled" note on your credit file. That may actually hurt your score, even though you've paid the debt.
Creditinfo.com has some terrific sample letters in this regard.
