This is the nicest definition I've come across, nicked from the Australian Mediation Association's website:
Mediation is a process in which an impartial third party - a mediator –facilitates the resolution of a dispute by promoting uncoerced agreement by the parties to the dispute. A mediator facilitates communication, promotes understanding, assists the parties to identify their needs and interests, and uses creative problem solving techniques to enable the parties to reach their own agreement.