Decoupling
One common kind of decoupling is of a powered circuit from signals in the power supply. Sometimes, for various reasons, a power supply supplies an AC signal superimposed on the DC power line. Such a signal is often undesirable in the powered circuit. A decoupling capacitor can prevent the powered circuit from seeing that signal, thus decoupling it from that aspect of the power supply circuit.
Another kind of decoupling is stopping a portion of a circuit from being affected by switching that happens in another portion. Switching in subcircuit A may cause fluctuations in the power supply or other electrical lines, but you do not want subcircuit B, which has nothing to do with that switching, to be affected. A decoupling capacitor can decouple subcircuits A and B so that B doesn't see any effects of the switching.
To decouple a subcircuit from AC signals or voltage spikes on a power supply or other line, a bypass capacitor is often used. A bypass capacitor is to shunt energy from those signals or transients past the subcircuit to be decoupled, right to the return path. For a power supply line, a bypass capacitor from the supply voltage line to the power supply return (neutral) would be used.
High frequencies and transient currents flow through a capacitor, in this case in preference to the harder path through the decoupled circuit, but DC cannot go through the capacitor, so continues on to the decoupled circuit.
Read more about this topic: Decoupling Capacitor