A null modem cable allows you to connect your PC to another nearby PC or serial device using its modem protocol. A popular use of null modem cables is for setting up "head-to-head" gaming between two players at different computers in the same room. (A null modem cable is limited to 30 feet in length.)
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The standard RS-232C serial communications interface defines a signal protocol between a Data Terminal Equipment (DTE) - usually your PC - and a Data Communications Equipment (DCE) - or your modem. The signals are transmitted on a set of lines, each of which has a function in the "talk" that the DTE and DCE do back and forth. One line each way is for data; the other lines are for different "statements" that one end of the communication sends to the other. For example, the DTE sends the DCE (usually a modem) a "Request to Send" signal on the RTS line and the DCE replies with a "Clear to Send" signal on the CTS line. After a series of similar exchanges, the DTE sends data on the line devoted to transmitting data (which for the DCE is a line for receiving data from the DTE).
Since a modem or DCE is not really needed to interconnect your PC with another local serial device, the DTE interface can be used by both your PC and the attached serial device. However, the DTE interface is designed to work with a DCE device. What a null modem cable does is to make the other end of the PC or device's DTE interface look like a DCE interface.
A null modem cable is sometimes called a crossover cable.