White noise is a type of noise that is produced by combining sounds of all different frequencies together. If you took all of the imaginable tones that a human can hear and combined them together, you would have white noise.

The adjective "white" is used to describe this type of noise because of the way white light works. White light is light that is made up of all of the different colors (frequencies) of light combined together (a prism or a rainbow separates white light back into its component colors). In the same way, white noise is a combination of all of the different frequencies of sound. You can think of white noise as 20,000 tones all playing at the same time.

Because white noise contains all frequencies, it is frequently used to mask other sounds. If you are in a hotel and voices from the room next-door are leaking into your room, you might turn on a fan to drown out the voices. The fan produces a good approximation of white noise. Why does that work? Why does white noise drown out voices?

Let's say two people are talking at the same time. Your brain can normally "pick out" one of the two voices and actually listen to it and understand it. If three people are talking simultaneously, your brain can probably still pick out one voice. However, if 1,000 people are talking simultaneously, there is no way that your brain can pick out one voice. It turns out that 1,000 people talking together sounds a lot like white noise. So when you turn on a fan to create white noise, you are essentially creating a source of 1,000 voices. The voice next-door makes it 1,001 voices, and your brain can't pick it out any more.

Source: science.howstuffworks.com