Ethnography is a technique developed largely by anthropologist Margaret Mead. It involves behavioral observation, contextual interviewing and analysis of users in their work, home or play spaces. The key strength to ethnography is context. Context provides insight into not only who users are (demographics) but what is important to them and what causes them to act and make decisions (psychographics).
Ethnography goes by a few different names. The most common include: Contextual Interviewing, Field Studies and Task Analysis. My personal contribution to the field, called "Cognitive Archeology"(PDF) involves an analysis of user behavior and environment with an emphasis on understanding decision-making, problem-solving and the interaction of tasks, values and beliefs.