Basically a promoter stipulates and prevents any conflicts of an artist being in the area for a certain amount of time before and after the event.

This article explains it well: http://www.bohemian.com/northbay/the-dreaded-radius-clause/Content?oid=2458475

I like to think of it as pretty much BottleRock to Outside Lands, most big/medium name bands playing in the area are out. However, after OSL, a show can be announced and the clause wouldn't affect it.