Could someone explain to me what Indexing Theory is?

[Torie]

Indexing is a term usually used to adjust expenditures over time in real dollars, rather than nominal ones, so that the effect of inflation is adjusted out. It is also an investment term, for an investment in a basket of assets, usually via a mutual or exchange traded fund, that tries to replicate the price movements of a published index, such as the S and P 500 or whatever.