Secularization or secularisation generally refers to the process of transformation by which a society migrates from close identification with religious institutions to a more separated relationship. It is also the name given to a general belief about history, namely that the development of society progresses toward modernization and lessening dependence on religion as religion loses its position of authority.

Background
John Sommerville (1998) outlined six (6) uses of the term secularization in the scientific literature. The first five are more along the lines of 'definitions' while the sixth application of the term is more of a 'clarification of use' issue:

When discussing macro social structures, secularization can refer to differentiation: a process in which the various aspects of society, economic, political, legal, and moral, become increasingly specialized and distinct from one another.
When discussing individual institutions, secularization can denote the transformation of a religious into a secular institution. Examples would be the evolution of institutions such as Harvard University from a predominantly religious institution into a secular institution (with a divinity school now housing the religious element illustrating differentiation).
When discussing activities, secularization refers to the transfer of activities from religious to secular institutions, such as a shift in provision of social services from churches to the government.
When discussing mentalities, secularization refers to the transition from ultimate concerns to proximate concerns. E.g., individuals in the West are now more likely to moderate their behavior in response to more immediately applicable consequences rather than out of concern for post-mortem consequences. This is a personal religious decline or movement toward a secular lifestyle.
When discussing populations, secularization refers to broad patterns of societal decline in levels of religiosity as opposed to the individual-level secularization of (4) above. This understanding of secularization is also distinct from (1) above in that it refers specifically to religious decline rather than societal differentiation.
When discussing religion, secularization can only be used unambiguously to refer to religion in a generic sense. For example, a reference to Christianity is not clear unless one specifies exactly which denominations of Christianity are being discussed. Definitions
As studied by sociologists, one of the major themes of secularization is that of "differentiation": the tendency for areas of life to become more distinct and specialized as a society becomes modernized. European sociology, influenced by anthropology, was interested in the process of change from the so-called primitive societies to increasingly advanced societies. In the U.S., the emphasis was initially on change as an aspect of progress, but Talcott Parsons refocused on society as a system immersed in a constant process of increased differentiation, which he saw as a process in which new institutions take over the tasks necessary in a society to guarantee its survival as the original monolithic institutions break up. This is a devolution from single, less differentiated institutions to an increasingly differentiated subset of institutions.

Sociological Use and Differentiation
In most Western countries, government, the not-for-profit sector and the private sector have taken over the provision of social welfare functions, but in Germany, secularization has not occurred to the same degree. There are still about 100,000 Church-based charitable foundations providing services from pre-school education to health care for the elderly, making the two major Churches the second largest employers after government. This is funded partly by the Churches out of their own revenues, with the balance coming from general tax revenue. Critics argue that by allowing the Churches to play such a major role, the State is breaching its duty of neutrality under Article 4 of the Grundgesetz, and they consider it inappropriate for such heavy subsidies to be given to the Churches. For their part, the Churches see this work as a natural part of their Christian mission. (On the extensive secularisation in Germany at the beginning of the 19th century, see German Mediatisation)

Institutional Secularization
At present, secularization as understood in the West, is being debated in the sociology of religion. Some scholars (e.g. Rodney Stark) have argued that levels of religiosity are not declining (though their argument tends to be limited to the U.S., an admitted anomaly in the developed world). As there appears to be some merit to this position, other scholars (e.g. Mark Chaves, N. J. Demerath) have countered by introducing the idea of neo-secularization, which broadens the definition of individual level religious decline by arguing that secularization can also refer to the decline of religious authority.
In other words, rather than using irreligious apostates as the solitary measure of a population's secularity, neo-secularization argues that individuals are increasingly looking outside of religion for authoritative positions on different topics. Neo-secularizationists would argue that religion is no longer the authority on issues like whether to use birth control and would therefore argue that while religious affiliation may not be declining in the U.S. (a debate still taking place), religion's authority is declining and secularization is taking place.
More research on secularization in the Middle East and the remaking of the Islamist states is being undertaken not only for its theoretical implications, but also to counter the stereotypical portrayal used to scapegoat the Islamist movements (see Edward Said and other authors on the use of the discourse to encourage unity in one community by focusing on other groups, alleging a threat in behavior characterized as irrational, undemocratic and violent).

Current issues in the study of secularization

Interdict (Roman Catholic Church)
German Mediatisation
Sociology of Religion