Pixelation is the term for what happens to a digital image when it is enlarged noticeably.  Digital images are made up of tiny squares of color known as pixels.  Pixelation occurs when these tiny squares of color become noticeable as a digital image is enlarged or stretched.  The end result is poor image quality, and the image is grainy or blurry.  There are varying degrees of pixelation though, and enlarging a photo a little bit won't make it noticeably pixelated. An increase of 50% more is when pixelation really becomes noticeable in an image.

Figure 2 (right) illustrates pixelation. The graphic is clean and concise at a small size, whereas the image becomes noticeably pixelated when enlarged.