a blog hop is basically a way of finding new blogs and bringing new readers to your own blogs.
The idea is that you link up at the blog hop and visit a few blogs that look interesting to you. If you like them, you'll follow them and hopefully they'll reciprocate.
As far as how to do one, you use a link up generator like this: http://www.linkytools.com/
and post it on your blog (usually blog hops involve a button of some sort so that your readers can share the hop on their own blog) and invite others to come link up.
I have a blog hop going on today if you want to see how I set mine up: