What is a beta reader, and why should I use one?
For the first part of that question, Wikipedia's definition is a pretty good one:
...a non-professional reader who reads a written work, generally fiction, with the intent of looking over the material to find [errors] and improve elements such as grammar and spelling, as well as suggestions to improve the story, its characters, or its setting. Beta reading is typically done before the story is released for public consumption. Beta readers are not explicitly proofreaders or editors, but can serve in that context.
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Elements highlighted by beta readers encompass things such as plot holes, problems with continuity, characterisation or believability.
For the second part, the answer is simple - because everyone's writing can be improved by running it past a neutral second party to get constructive feedback. Everyone's. Even the best writer can have a blind spot for mistakes and rough patches in their own writing. Using a "beta" doesn't mean your writing is bad (as a lot of people seem to think it does); it means you care about making sure it's polished for publication, so your readers have the best possible experience with your story.
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What can a beta reader do for me?
There are a lot of different "levels" of beta reading. I'm going to let you read through some more in-depth resources (listed below) on your own to get a sense of the possible scope of that relationship (and we may revisit some of those ideas on down the line), but let's just say if you're writing a novel intended for professional publication, your goals and process in working with a beta are probably going to be different than if you're looking for someone to gently assist in the birthing of your fanfic.
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Usually, though, a beta is simply going to be your first outside eyes - someone who will be able to approach your story with a fresh perspective. They're going to notice things you've gotten so used to in the ten zillion times you've looked at the material that you don't even see them anymore - from things as basic as misspellings and punctuation errors, to grammar and word usage issues, to more specific structural issues like places where the order of the story elements is confusing, omission of key details, or gaps/inconsistencies in the narrative that a reader may find hard to get past without getting thrown out of the story.
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Your beta will be the one to tell you, "hey, this part didn't make sense to me - I think there's something missing. If (your main character) has been alone since he was separated from his traveling companions, how did he know about (some intervening event) when he was reunited with them?" With any luck, a beta will spot that place where you switched from present tense to past, or where the old girlfriend's name suddenly becomes Ellen, when it's been Elaine all through the story.
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What your specific beta does for you depends on what you want them to do, and the boundaries of your relationship is something the two of you will have to negotiate. If you just want someone to proofread for spelling, punctuation, and grammar, that's fine - so long as you don't later hold them responsible for that cavernous plot hole when it gets pointed out by a reader. So talk with your prospective beta, and work out just how involved you want them to get in your writing process.
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The following link will take you to a short list of articles on beta readers, including how to find one. The orientation of the articles is that of someone writing a novel for publication, so you may find some of the suggestions to be a little intimidating and far beyond what you are willing to undertake for the sake of your fanfic. There are, though, some terrific ideas of ways to think about using a beta, which you may find helpful.
http://www.smallbluedog.com/category/beta-readers
Coming up: How do I find a beta reader? What should I be looking for? What if I don't like my beta's suggestions? and other pithy topics.
Click here for part two: How to find a beta reader