Basis
A settlement, as well as dealing with the dispute between the parties is a contract between those parties, and is one possible (and common) result when parties sue (or contemplate so doing) each other in civil proceedings. The plaintiff(s) and defendant(s) identified in the lawsuit can end the dispute between themselves without a trial.
The contract is based upon the bargain that a party foregoes its ability to sue (if it has not sued already), or to continue with the claim (if the plaintiff has sued), in return for the certainty written into the settlement. The courts will enforce the settlement: if it is breached, the party in default could be sued for breach of that contract. In some jurisdictions, the party in default could also face the original action being restored.
The settlement of the lawsuit defines legal requirements of the parties, and is often put in force by an order of the court after a joint stipulation by the parties. In other situations (as where the claims have been satisfied by the payment of a certain sum of money) the plaintiff and defendant can simply file a notice that the case has been dismissed.
The majority of cases are decided by a settlement. Both sides (regardless of relative monetary resources) often have a strong incentive to settle to avoid the costs (such as legal fees, finding expert witnesses, etc.), the time and the stress associated with a trial, particularly where a trial by jury is available. Generally, one side or the other will make a settlement offer early in litigation. The parties may hold (and indeed, the court may require) a settlement conference, at which they attempt to reach such a settlement.
In controversial cases, it may be written into a settlement that both sides keep its contents and all other information relevant to the case confidential, and/or that one of the parties (usually the one being sued) does not, by agreeing to the settlement, admit to any fault or wrongdoing in the underlying issue.
Read more about this topic: Settlement (litigation)
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