Here is the definition from Per Dohler, a software localization guru: Localization is the process of adapting a product, in our context a software program, to a specific locale, i.e., to its language, standards and cultural norms as well as to the needs and expectations of a specific target market. A properly localized product also meets all the legal requirements in force in the user’s region. Wikipedia also has a good description. GiltWorld is a Chinese site dedicated to the software localization in China.
It appears to me the software business is picking up in China as: 1) The goverment is stepping up the IP law enforcement, amid the pressure from western companies and more importantly, China has more intellectural properties too; 2) Many companies (domestic and international) have the business need for enterprise software from foreign vendors.
As the international software companies doing more business in China, they need to adapt their software to Chinese standards and customs. Some Chinese companies are emerging as the leaders in this business, such as BeyondSoft (PacificEpoch interview) and Worksoft.