Bulking and Cutting

Bulking: Someone should bulk if their primary goal is to build muscle. This means upping the food you eat (healthy food) to enable you to build muscle. You will gain some fat but you want to keep any fat gain to a minimum to not make it hard for yourself later. To bulk you must be in a caloric surplus, meaning taking in slightly more calories than you are burning. 

Cutting: You should cut if your primary goal is to lose fat. Cutting allows you to lose fat whilst keeping all of the muscle you've gained. You should go through phases of bulking and cutting until you are as muscular/fit as you like. To cut, your body needs to be burning more calories than it is consuming. 

You could go wrong by gaining too much fat while bulking or losing too much lean muscle while cutting, this is why your diet and exercise is the key. If you are at a healthy body fat then bulking makes sense to gain muscle and in turn burning away any excess fat. But if you are overweight, cutting is the priority in order to lose fat and get to a healthy body weight in order to start bulking.

Tip: Although it is possible to gain muscle and lose fat at the same time in one "phase", I suggest following the bulking and cutting strategy as it is significantly more efficient and sees best results.