What does Pooling mean?

The action taken by a token holder to lend his or her tokens to a liquidity pool. In exchange for market making and/or trading fees.

In the finance industry most exchanges maintain an order book and a matching engine. The matching engine facilitates trades between buyers and sellers. For every successful trade, a trade is charged a fee. The fee goes directly to the exchange operators.

While this is very beneficial for exchange operators. It can be a hefty tax for market participants. DeFi industry completely flips this paradigm on its head.
The difference between traditional finance and DeFi are the following:

Smart contracts can hold liquidity reserves of various tokens. Thus, trades can be executed against these reserves held within the smart contracts.

Prices are set automatically. Using the constant market maker mechanism keeps reserves at relative equilibrium. Reserves are pulled together between the network of liquidity providers. Whom supply the system with tokens and liquidity.