A "Browser Helper Object" is a DLL that allows developers to customize and control Internet Explorer. When Internet Explorer starts it reads the registry to locate any installed BHOs and then creates them. Created BHO's have access to all the events and properties of that browsing session. Every time a new browser window is opened, it creates a copy of the BHO and when that window is closed, it destroys its copy of the BHO.

Browser Helper Objects: The Browser the Way You Want It
This MSDN knowledge base article discusses the implementation and function of a Browser Helper Object.