Batching involves consolidating multiple payments into a single transaction with many outputs. Because Bitcoin fees are paid based on how much data the transaction uses, combining multiple transactions into a single transaction can save data and thus fees.
For example, if Alice wants to pay Bob 0.5 BTC, Charlie 0.3 BTC, and David 0.2 BTC, she can create a transaction with a 1 BTC input and 3 outputs instead of creating 3 transactions with 2 outputs—one for the payee and one for change output—each.
The advantages of batching increases with scale. For example, an exchange wishing to serve 100 client withdrawal requests can either submit 100 transactions, or a single transaction with 100 different outputs. The latter option will offer significant fee savings.