DLP stands for 'Digital Light Processing' and is a technology invented by Texas Instruments. The picture in a DLP projector is produced by light reflecting off a Chip which has millions of tiny mirrors fixed on it. This chip is commonly known as a 'Digital Micromirror Device' or DMD. Each mirror in the DLP projector's DMD Chip represents one pixel in the digital image, so for example, in a HD DLP DMD chip there will be 1920x1080 or a little more than 2 million mirrors assembled on the tiny DLP DMD Chip. The DLP chip mirrors vibrates or wobbles to either reflect the light beam to the final image or rejects the light falling on it.
Chip DLP projectors can process individual beams of RGB light simultaneously and are capable of producing high quality images which are bright. Most cinema theaters use 3 chip DLP projectors to show movies. The cheaper Home and portable DLP projectors uses only one DLP Chip and processes the RGB light sequentially one after the other with the help of a high speed rotating color wheel, as shown in the animation here (from http://www.starwayline.com).