BIBTeX is a bibliographic database program, which is a companion program to LaTeX. BIBTeX manages bibliographic references automatically, which reduces the time needed to reformat them an improves accuracy. Using BIBTeX means you only type the citation information once, and then you can cite it in any document you write and it will get reformatted automatically to the style you specify.
When you run the bibtex program, the details of every document you have cited will be extracted from your running database. These will be formatted according to the style you specify, and these will be stored in a temporary bibliographic file (.bbl) with a label corresponding to the one you used in your citation. This is entirely automatic: all you do is cite your references using the labels you gave the entries in your BIBTeX file, and run the bibtex program.