Core aeration reduces soil compaction and thatch, creating a channel through which oxygen, water, and nutrients can penetrate the soil. There are other ways to aerate a lawn. For example, some lawn aerators drive solid tines into the earth. But that method isn't considered as effective as core aeration, in which you're creating holes of a significant diameter and depth: 1/2 inch to 3/4 inch wide by 3 inches deep.
When do I aerate? Aeration can be done at almost any time of year as long as the ground is dry, but is normally done in the spring and fall here in the Pacific Northwest.