In practice, it means any debt where the original holder of the debt has determined that it is unlikely to receive payment from the debtor so the right to collect the debt is sold to a third party.

An example: Bob takes out a credit card with a limit of $500 and charges $300 to it. Bob makes no payments. After three months (90 days), interest, late fees, and so on have pushed the total debt to $620 and Bob's credit card issuer decides that Bob is unlikely to pay. The debt is sold to a collection agency and is written off as a bad debt on the books of the credit card company. The collection agency pays $20 for the debt (so low because Bob is, through external methods, deemed to be unlikely to pay any debts, much less an unsecured credit card) and now hassles Bob for the next several years.

At the point that the debt was sold is when most people consider it to be "in collections." You exit collections by paying the debt.