Microsoft coined this term in the late 80s.
The main idea is that companies that make a product should use that product on a daily basis. That way, you can experience the pleasure (or pain) yourself, and have a better idea of where to focus resources.
At PMRobot, we use our own software every day.
It was conceived and born in our sister company, Syllogistic Software, and continues a core element of our processes.
"Dogfooding," as its often referred to, is absolutely essential when building a product, because it really helps motivate internal innovation, and quick fixes to problems.
A similar example, dating all the way back to 1981, is when Apple decreed in a memo:
“EFFECTIVE IMMEDIATELY!! NO MORE TYPEWRITERS ARE TO BE PURCHASED, LEASED, etc., etc. Apple is an innovative company. We must believe and lead in all areas. If word processing is so neat, then let's all use it! Goal: by 1-1-81, NO typewriters at Apple... We believe the typewriter is obsolete. Let's prove it inside before we try and convince our customers.” - An Apple On Every DeskIf an annoying change makes it to the server, we experience the pain first hand, instead of just hearing a second hand account from our customers.
If you develop a product, consider making daily use of that product a habit.
I guarantee it will help you produce something of much higher quality.