A vicious circle is a set of events in which one bad thing leads to another bad thing which leads to more of the first bad thing. In other words, it is a process by which things keep getting worse and worse and the trouble feeds on itself.
A good example of this is a lack of consumer confidence. If people lack confidence in the state of the economy, they spend less money. If they spend less money, the economy gets worse because people aren't buying. People start to lose their jobs. As this happens, people lose confidence in the economy to an even greater degree and the cycle continues.
A vicious circle is something bad that leads to something worse that leads to something worse, etc. Because it is a circle, at some point it will return to the original instance and start all over again. In other words, without change, this cycle is unending.