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Instead of dating or having exclusive relationships, many people (particularly younger ones) find it convenient to get their sexual needs met by hooking up with friends. Such "friends with benefits" relationships do not entitle either party to exclusivity or standard dating behaviors.
A "friends with benefits" relationship may be a convenient for the commitment-phobic, particularly if you're in a time of intense demands or rapid changes (such as college). At the same time, it requires both parties to know the difference between love and lust. If one or the other becomes emotionally invested in the relationship, it can easily destroy the friendship and the benefits.
The best way to enter into this relationship is to have a conversation in which you are very clear about what you want and what you're willing to offer. The most important this is that both parties agree on a level of involvement that will satisfy you both, and that honesty is apparent and expected.