A niche market is a focused, targetable portion of a market.
By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. You can think of a niche market as a narrowly defined group of potential customers.
For instance, instead of offering cleaning services, a business might establish a niche market by specializing in blind cleaning services.
Why should you bother to establish a niche market? Because of the great advantage of being alone there; other small businesses may not be aware of your particular niche market, and large businesses won't want to bother with it.
The trick to capitalizing on a niche market is to find or develop a market niche that has customers who are accessible, that is growing fast enough, and that is not owned by one established vendor already. See How to Find and Master a Niche Market for more information.