Niche marketing means that you are focusing on becoming an authority in a highly specific market. A niche is a very targeted and focused area within a general market. An example of a general market is "pets," whereas an example of a niche market could be "tropical aquarium fish" or "Black Labrador dogs."
There are many reasons why niche marketing is effective, with one reason being that it's much easier to become an expert in a niche than in a market. The smaller and more focused you can go the better.