A betting exchange is a betting marketplace. Bettors can bet on the outcome of events, such as a football game’s results, they can buy and sell the outcome they have placed their bets on and also trade in real-time throughout the event (or trade out to cut your losses or lock in profit).
Unlike traditional bookies who make money on the odds (by having a margin between the “real” odd and the odds they offer you), a betting marketplace charges a fee per transaction. Betting exchanges offer better odds than the bookmakers, and even with their commission on top of that, you are better off with them.
As of 2018, there are still just 4 major betting exchanges on the Web: the largest one is BetFair, dominating more than 90% of the market.The second biggest one is BetDAQ (acquired by Ladbrokes in 2013), followed by “newcomers” MatchBook and sMarkets.
How does a betting exchange work? – a well-written article on BBC.co.uk
Betting exchange on Wikipedia – the best web page to start with if you are new to the topic.
Betting exchanges explained – Pinnacle Sports has a short but useful post that will make you understand the basics of betting exchanges through a few practical examples.