What is this fragmentation on Android?
Fragmentation has to do with the fact that currently, there are several versions of Androids operating system in use by the different handset makers such Motorola, Samsung, & HTC.
Due to the differences not all apps will run on the older versions. Conversely some apps will not run on newer versions. The versions installed on different models of handsets are ver: 1.6, 2.1, 2.2, 2.3.
One of the most recent reports suggests that versions 2.1 and 2.2 are on the majority of phones even though the newest is 2.3 which offers features not available on the older ones. Therefore the word chosen as the solo identifier of this situation is fragmentation. In addition, there's been a very negative connotation attached to fragmentation by Apple, Androids largest competitor.
As a very avid smartphone enthusiast who's owned many different brands of phones running on the various operating systems, I find Android my favorite by a wide margin.
In my opinion the best thing that could happen is for Google who owns Android to use its influence on the handset makers to get current with the newest version being installed on all Android phones. (this is currently being undertaken). At that point they would all have the same features and simplify development of applications.
Currently app developers only have to develop one version for Apple, whereas due to fragmentation they must develop more than one version of the same app for the different versions of Android. As a result they can generally make more money creating iPhone apps. Obviously this is a disadvantage for Android.
Hopefully this gives you the answer to your question, along with further insight about Android.