As of today, July 18th, 2016, the footstep function is broken, and has been broken for a few days now.
The footstep counter is supposed to be one step away, two steps away, or three steps away depending on how close/far away you are.
There is a lot of debate on the internet about the exact values (Niantic won't give us exact numbers), but it appears that:
- No Footstep: 0m to 40m (the same as the distance you can trigger PokeStations and the like from)
- One Footstep: 40m to 75m
- Two Footsteps: 75m to 150m
- Three Footsteps: 150m to 225m
Once a Pokemon goes outside your circle range, it changes from 0 footsteps to 1 footstep. This can be a helpful tool that you can use to track down Pokemon that are close to you.
Good luck with your Poke-hunting!