SEO means ‘search engine optimization’, or ‘optimization’ in the US.
The term SEO can actually umbrella a few things, like on-page SEO, off-page SEO, and search engine marketing.
When people use the term SEO, they are generally talking about the art of programming a website so that search engines understand and rank it.
Both layout and programming have an effect on the way search engines rank a site. Ultimately Google wants websites to be easy for users to navigate, fast, content-rich, and programmed so that search engine crawlers easily understand what is on each page.