Colonialism is the extension of a nation's sovereignty over territory beyond its borders by the establishment of either settler or exploitation colonies in which indigenous populations are directly ruled, displaced, or exterminated. Colonizing nations generally dominate the resources, labor, and markets of the colonial territory, and may also impose socio-cultural, religious, and linguistic structures on the indigenous population (see also cultural imperialism). It is essentially a system of direct political, economic, and cultural intervention and hegemony by a powerful country in a weaker one. Though the word colonialism is often used interchangeably with imperialism, the latter is sometimes used more broadly as it covers control exercised informally (via influence) as well as formal military control or economic leverage.
The term colonialism may also be used to refer to an ideology or a set of beliefs used to legitimize or promote this system. Colonialism was often based on the ethnocentric belief that the morals and values of the colonizer were superior to those of the colonized; some observers link such beliefs to racism and pseudo-scientific theories dating from the 18th to the 19th centuries. In the western world, this led to a form of proto-social Darwinism that placed white people at the top of the animal kingdom, "naturally" in charge of dominating non-European aboriginal populations.
Copy-pasted from Wikipedia, due to its immediate relevance to current rural development practice: http://en.wikipedia.org/wiki/Colonialism