Blood diamonds are diamonds which have been mined from a nation that has an internal political struggle going on, that is usually a violent one and the money earned from the export of diamonds is used to fund the various groups involved in the civil war. It allows the groups to buy more weapons and expand their fight.
Countries in Africa, which are rich in diamonds like Angola, Liberia, Congo, etc. have gained independence only in the last 2-3 decades and are yet to establish a stable political system. There are numerous groups all over these countries which wage war among each other. To find funds for this, the local civilians are forced to mine diamonds which are then used to finance the war that is being waged.
In view of this, major diamond importing nations around the world have now placed restrictions on the import of diamond from these areas. It is expected that this will help in the restoration of peace and benefit the locals. Though the trade in diamonds from conflict zones continues in many ways, there has been a reduction due to the restrictions placed.