In both classical music and jazz, we often encounter the concept of voice leading. What is it? What does it do?
The term "voice leading" comes from choral music, but it applies to chord progressions in all sorts of arrangements for all sorts of instruments. A chord progression has two dimensions: horizontal and vertical. Let's say you are playing four-note chords in sequence. You can think of the progression as a series of block chords (vertical), but you can also think of it as four independent musical instruments (horizontal), which play one note at a time, playing four different melodies which line up to make the chords. So voice leading is the process of writing four melodies which are smooth and logical and easy to sing or play, in the service of creating the chord progression.
For example, if you were to compose a melody with a certain chord progression, and arrange three singing voices beneath the melody to flesh out the chords, you would usually not want the melodic lines of the three singing voices to have to jump around across awkward wide intervals from one note to the next. So you would try to follow the rules of voice leading outlined in classical music theory, to produce smooth, musical lines.
Here is a rough example I have created from a Bach chorale.
You might think of this piano part as a series of chords:
However, it is also four melodies sung simultaneously, using voice leading:
Orchestral composers think about voice leading. Pianists who improvise in jazz pay attention to voice leading, which you can think of as how to play a chord progression with the least amount of changes in hand position and the smoothest fingering patterns.
Unfortunately, due to the nature of the relationship of the pitches on the six strings of the guitar, the concept of voice leading is very hard to implement on guitar, and most guitarists don't get around to working with the concept. Guitarists, in contrast to piano players, tend to think of chords as certain block shapes that they memorize, and they give little thought as to creating different inversions and voicings of chords that would create a smoother voice leading in a chord progression.
As Wheat says, voice leading mostly doesn't happen on guitars, but there are a few cases where it does:
using certain patterns, like Travis-picking, the bass-line may be a more or less distinct part throughout the piece.
As an extreme oversimplification, the classical rules of counterpoint can be summed-up in a single rule: no parallel motion of consonant intervals. Fourths, Fifths and Octaves don't just slide up and down the guitar neck for the next chord change. Rather, one should alternate between different chord forms: the E and A and D all have the same form from the point of view of the figured-bass R-5-8-10-12-15, as do C and G R-3-5-8-10-15. Other inversions help to mix it up, but alternating between the two forms will make a guitar accompaniment more fluid by breaking up the parallel fifths. Conversely, not alternating forms will tending to make the chord transitions more choppy, so to speak, because the parallel motion of fifths violates traditional counterpoint.
Wheat gave a very good explanation of voice leading and I thought I'd just add a bit about counterpoint.
Up until relatively recently (1600s/1700s) the concept of a chord wasn't around - composers may have thrown a C-E-G out there but they didn't refer to it as a 'C Major' chord. However there were certain rules prescribed that told what was legal or illegal as far as voice movement (including valid intervals that could be reached, allowable intervalic jumps, where in the rhythm different intervals could be found, etc) that naturally led to what we now call triads. An excellent book on counterpoint is Fux's Gradus Ad Parnassum - it covers the rules of counter point which I have found very useful to keep as general guide lines in lots of composition and performance situations. Also it's old enough that you can legally download a free PDF (I'm assuming - its a few hundred years old but copyright laws being what they are...)
A great example in how voice leading may be applied is to take the melody that you want to play, the bass line that you would like to play (sometimes derived in real time, sometimes pre-arranged) and fill in the voicings of the chords on the fly. The four basic types of contrapuntal motion are oblique, contrary, similar and parallel motion. using contrary and oblique motion help to set up the independence of voices from one another.
What's really neat about voice leading is that if you follow the voices and not the 'expected' chord patterns you can arrive at some very different sounds than you would have otherwise produced.
A last word on voice leading - inversions win the day! The idea of a chords consonance can be thought of not only in its harmonic context but also in its inversional context - A first or second inversion I chord are a little more dissonant than a root inversion I chord. Thus it is the composers challenge to write his/her piece of music so that the voices naturally reach the inversion that best fits the situation. If at the end of the piece you want to naturally fall into a basic root inversion chord to give a very settled feeling but you have to make some very large vocal jumps to get there or have to move everything up in parallel motion etc, you might want to re-evaluate some of the preceding bars that you have down to see if there is another way to get there. In the end a piece of music's feeling can be totally altered by good/bad voice leading.
Every instrument that can make a pitch has a voice. Voice Leading is the study of how these voices move, resolve, and fit with the harmony. Every melody, every chord, every harmony can be looked at from a voice leading perspective. How the voice moves, what the range of the voice is, it's function in the harmony, how the voice interacts with the voice are all part of the study. Classical voice leading is different than Jazz voice leading and so are the rules that govern them. Since Jazz evolved from the classical, I would pick up a music theory book and study classical four part counterpoint and then move on to Jazz. There are many books to this topic and many do and don't that differ from style to style way more than can be written here.