Well, there are two kinds of modding. You can do case-modding, which involves visually enhancing your computer case. Think of spraypaint, or plexiglass windows in the side of the case and neonlights on the inside.
And then there is internal modding, which is actually called tweaking. This involves overclocking your processor (and/or graphics-card). This means letting it run at a higher speed (MHz) than it was designed for. This usually works well, but the hardware gets much hotter then it should. Therefore people apply bigger cooling fans or in extreme cases, watercooling.
This is modding in a nutshell, but there are lots more possibilities.