Alienation is both the central philosophical concept in Marx's work and one of his most original contributions to the history of philosophy. Marx follows Hegel in historicizing the human situation, in other words by treating people not as isolated individuals nor even as embedded in only their present society, but as part of an historical dynamic that shapes their consciousness. Where Marx differs from Hegel is in his realization of the importance of economic factors not just on the externalities of life, but also on the formation of ideas, social interactions, and politics.
Alienation, for Marx, is a situation in which people are deprived of their capacity for self determination in industrialized capitalist societies. As Marx observed the huge factories that sprang up in the great manufacturing cities of northern England, he saw that workers in those factories no longer functioned as humans using their own creativity and skills but almost as machines, acting in mindless obedience, in a process called "reification" (making people into things).
In pre-capitalist society, according to Marx, craftspeople owned their tools, and produced entire objects (pottery, tapestries, the stone gargoyles on Gothic cathedrals) and could feel a connection to the products of their labor. In modern industrial societies, workers do not own the means of production, nor do they have a connection to or ownership of the final product of the production process.
Marx's solution to the problem of alienation is economic, giving workers ownership of the means of production and reducing the economic inequality in an ideal communist society in which, rather than having the very rich own the means of production and accumulate capital and the workers live in a state of alienation, wealth and labor would be distributed, in Marx's famous phrase:
From each according to his abilities, to each according to his needs.