Bleeding hell...

One of the most important things that designers with an aim towards print should understand thoroughly is bleed. In order to understand why you need bleed, it helps to know how prints are produced.

A printer, be it digital or offset, cannot apply ink or toner all the way to the edge of a sheet of paper. This makes inherent sense if you think about it. In order for that color to go off the edge of the sheet, the machine would get toner and ink all over its rollers and other workings (and probably carry over to the other side of the sheet as well). It would be a mess. Imagine laying a piece of paper flat on your desk and trying to highlight the edge of the sheet without getting any highlighter ink on your desk. Not so easy. Now imagine trying to do the same with baby powder or wet tar, and you can picture the mess. In order to work around this problem, printers place your images on a larger sheet of paper and then cut it down to the size that you need.

The other challenge to be aware of is minute paper shift during a production run. There is always the chance that tiny shifts will occur as to where the image is on the sheet. Sheets are not cut one at a time. They are cut in large stacks on a mechanical guillotine-like cutting machine.  This is why the extra bleed is added. If you added no bleed to your document, any shift variance would cause thin white lines to appear on some of your edges when cut. If your text is too close to the edge of your art, likewise you could have your text chopped. This is why including bleeds and sufficient margins are so important. Below is an illustration to help you visualize the proper layout.

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Notice that the crops do not intersect each other. You don't want anything that you would not want to show on the finished product to be too close to the cut area. You generally want an extra .125" of bleed all the way around that will be trimmed off in the final product. In addition best practice is to keep all important elements (text for example) at least another .125"(at the absolute minimum) inside your trim edge.

The whole bleed concept is kind of confusing, and hard for some new designers to grasp initially. Understanding this fundamental concept however, will make your life much easier (and keep your printer from hiding when they see you coming).