A renovation may be necessary because of damage to the structure or in order to improve the accessibility for aging residents. More often, renovations are a way to refresh a home or make it pleasanter. It is usually cheaper to change an existing house than to buy a new house and move. But if you live in a rental, there are often restrictions on the changes you can make -- even if extensive improvements were allowed, you probably wouldn't want to spend that much to improve someone else's building (unless you have a guaranteed long-term lease).
A renovation could be something as simple as replacing counter tops and cabinet doors to update the look of a kitchen. Or, it could be as complex as adding a secondary suite with an additional bedroom, bathroom and its own kitchenette and storage space.
- Wikipedia's article on renovation