To expand a bit on DEvens's answer...
We all agree that a straight line is a one-dimensional object. I can identify any point on the line with a single number, the distance from the origin (we'll use negative numbers for points to the left of the origin, positive for points to the right).
Likewise, a plane is two-dimensional. I can identify any point on a plane with two numbers, the classic x and y coordinates of the Cartesian plane that you've learned about in your first year of algebra.
It takes three numbers to identify a point in the three-dimensional space around us; if I'm in a room I can use the Cartesian x and y to identify a point on the floor, but I need a third number to specify the height above the floor (we usually call this "z" because that's the next letter after "x" and "y"). That's why we say that we live in a three-dimensional space.
However, it turns out to be very convenient in some problems to think of time as a fourth dimension. There's a spot on the floor, right under my foot - we'll say that it in three-dimensional space it is the point x=0, y=0, z=0 (zero meters away from me left and right, zero meters away from me forwards and backwards, zero meters above or below the floor). Say I tap my foot on the floor, wait three seconds, then tap my foot on the floor again. Using the language of time as a fourth dimension, we would say that the first foot-tap happened in four-dimensional space-time at the point x=0,y=0,z=0,t=0 and the second foot-tap happened at the point x=0,y=0,z=0,t=3. (To avoid confusion, we usually call points in four-dimensional space-time "events" and reserve the words "point" and "position" for three-dimensional space).