Drop shipping is a fulfillment model where a merchant doesn't carry any inventory. Instead, they only purchase an item from a wholesaler when they receive an order from a customer. Then, they have that item shipped directly from the wholesale warehouse to the customer.
It allows a merchant to start a store without having to invest up-front in inventory, and without having to manage a warehouse.
It's like asking why affiliate marketing exists. It does and it's huge.
It's mentioned in the guide that wholesalers are often terrible at SEO and website design.
Hence the room in the market for niche retailers who dominate their own long tail keyword terms (SEO), offer a great sales experience (well designed site) who can identify products that are possible to resell profitably.
First paragraph after the introduction. I mean, this paragraph could probably be written in a gazillion different ways but to me this pretty much explains what Drop Shipping is..
Edit: It seems that this paragraph was added later. :)