The EGR valve takes exhaust gas from your exhaust manifolds and puts it into your intake air. This serves 2 purposes - it cools the detonation charge inside the engine and it promotes fuel economy.
It cools the detonation because the burnt exhaust air cannot be reignited, so the detonation is mildly less than it would be with an engine full of fresh air.
It promotes fuel economy because it pushes less fuel into the engine. If you use 90% fresh air and 10% burnt air, the injectors will only push in enough fuel to combust the 90% fresh air (as opposed to having 100% of fresh air).
Usually, the EGR valve is ONLY active under cruising conditions. For example, if you are on the highway cruising at 70 mph, the EGR valve is probably recirculating the burnt air. However, if you are accelerating hard, the EGR valve is closed, allowing no burnt air to get into the engine.
The EGR valve is usually located on the back of the intake manifold, near the exhaust manifold.