A confederation is a large state composed of many self-governing regions. Unlike a federation, a confederation has a very weak central government with little influence over the actions or policies of the member regions. However, on certain key issues, such as defense or currency, the central government will be required to provide support for all members.
Traditional confederation style government has been rare in modern history, although many countries have identifed themselves as such (ie: German Confederation, Canadian Confederation, etc). The term "confederation" is thus used as a synonym of "federation." Confederations can be unstable, as was the case with the early United States in which dissatisfaction with the loose Articles of Confederation led to a much stronger central government under the Constitution of the United States.
The best examples of modern day confederations can be found in the government of Switzerland and the European Union. Switzerland is a state with a very weak central government, which allow for great powers of self-government for the member regions. The European Union on the other hand is a confederation of sovereign states without a central government.