A Short Sale is when a seller who faces a potential foreclosure, makes a deal with their mortgage lender to accept less than they owe on the property. The seller does the Short Sale to avoid going to foreclosure.
In most cases this Real Estate is listed with no prior negotiations of list price with the Bank. The seller presents a signed Short Sale Sales Contract to the Bank once a buyer is found for a particular price. Only then does the Bank establish what it will take at closing.
The shortsale process can be frustrating and long, so if you are in a rush or have a specific deadline to purchase a home, avoid the Short Sale process. However, if the bank has already established a firm price for the home, the process is far less redious unless you want different terms than offered.
In many cases, probably because of the long time from Short Sale sales contract to closing, many buyers go onto purchasing other properties, in which case the shortsale property goes back onto the MLS as active again.
I would always advise buyers to use a local real estate attorney to help you through the short sale process, because of its complexity and the minimal extra cost for representation by an attorney.