It is the phase of a penetration test where a network scanning tool is used to find out the live hosts on a network.
Host discovery is one of the very first steps to be carried out while performing a pen-test. The purpose is to guess the IP address range being used by the network and find out the live systems.
The results of a particular scan may not be always accurate because of advanced host based firewall configurations. The ideal approach would be to start with basic ping sweep/SYN scan and if it doesn't work try guessing the applications that may be running on the hosts and probe the corresponding ports.Sometimes more than one tool may be used for host discovery to get more accurate results. further reading...