According to Wikipedia, "
A handicap is a numerical measure of an amateur golfer's playing ability based on the tees played for a given course."
The golf handicap system is a way to level the playing field for golfers of differing abilities. The overall goal was to allow all skill levels to compete equally.
Though all courses differ, the main advantage behind a players handicap is the fact that a weaker player can "take a stroke" on particular holes from their scorecard. This way, when you are playing your retired friend (and you, like the most of us, have little time to practice) you can be certain that your gross scores are fair and respectable.
A handful of items, including; the golfers course score, course rating, slope rating - which all work together to calculate a golfer's handicap index which, in turn, can be used to calculate your course handicap depending on where you play.
Then what is a course handicap?
A value (rounded to the nearest whole number) that indicates the number of handicap strokes a player receives (from a specific set of tees at the course being played) to adjust his scoring ability to the common level of "scratch" (a zero handicap). Golphus does this for you for you. See the course handicap page for more information.
About.com has a great explanation of how a handicap should be calculated here.
But why bother with the effort yourself when Golphus does all this work for you and more. No need to know the course rating, or slope rating. Golphus has over 16000 courses already tracked and we are adding more daily.