The process of improving SourceCode and/or its resulting MachineCode with regard to a certain aspect. Such aspects include:

Speed:

Does what it says: the program runs faster. This is the aspect commonly referred to when the term Optimisation is used.

Object code size:

Reduces the size of large applications (such as browsers, office suites, and the like) or frequently downloaded code (such as scripts and applets on WebSites). As a side effect, Cache locality of the code improves, so performance will often benefit as well. This is the second most commonly referred to aspect of Optimisation.

Compilation time:

Improves the perceived responsiveness of code compiled dynamically in reaction to user requests.

Threading:

Leverages the resources of SMP systems better, because MultiThreaded tasks can take advantage of multiple CPUs at once.

In practice, you always need a balance among these.

Originally, StuartYeates also listed:

Flexibility:

Reduces the effort and thus cost of designing and implementing new features.

Portability:

Allows deploying the SourceCode on more than one platforms. This often requires avoiding other, platform-specific Optimisation techniques.

Personally, I think it is a stretch to file these as Optimisations. I have never heard them referred to as such, in any case. An appropriate term here is probably Refactoring.
--AristotlePagaltzis