What do economists mean by excess supply?

Answer:
The quantity supplied of a good or service in a particular market exceeds the quantity demanded when there is excess supply. Consumers are not interested in purchasing what the market has to offer, and so a surplus of units develops. More producers will have to shift resources out of this area, and decrease the level of production, until a satisfactory equilibrium is established.

The only mining operation, a world-class player in a small northern Canadian town, closes its operations and moves to south-east Asia. Many people put their houses on the market. A condition of excess supply—quantity supplied exceeding quantity demanded—or surplus, develops. Houses will sit on this market until sellers start to decrease their prices. Eventually, they do decrease their prices, to move their properties. The lower price starts to attract retirees from some surrounding cities interested in the good lifestyle and spurred by a local government advertising campaign that extols the value of northern living.
Quantity demanded increases and local builders will wait to see if excess supply dries up before they build new units. A new equilibrium is established, below the initial expectations of the original owners.

Prices and the prospect of profits create what Adam Smith saw as a self-regulating market mechanism: "Every individual .. by pursuing his own interest … promotes that of society. He is led by an invisible hand to promote an end which was no part of his intention."

(Sources employed: Adam Smith, The Wealth of Nations, p. 456, as quoted in Karl Case, et al., Principles of Microeconomics, Scarborough: Prentice-Hall, p. 98. I also relied on Karl Case's excellent work in Microeconomics for the example of excess supply, though it is rewritten.)