A keyword is a word or phrase that someone might enter into a search engine to find your site. Since every page is indexed individually by the search engines, the best strategy is to target each page to one or two specific keyword phrases.
When choosing your phrases, make sure you aren't aiming too high. To optimize for a phrase like "web design" is a tall order--which is why I optimize for "Portland Oregon web design" instead.
Think about all the other ways people could phrase their searches - "web site design" for instance, or "custom website". To see which ones are most likely to be used, use a tool like Overture's Keyword Tool or WordTracker.