Literally? It's when a bunch of guys stand in a circle and give a handjob to the guy next to them, jerking everyone off.

Metaphorically? It's a more vernacular way to describe a place where everyone pats each other's backs about how right they are, but there's no real insightful discussion or debate—the rhetorical equivalent of jerking each other off. It can also be called a "hugbox" or "echo chamber."

It's often used on reddit to describe subreddits where there's one overwhelmingly popular opinion, and any disagreement with that opinion is despised. For example, if someone says "/r/gaming is one big anti-EA circlejerk," they're saying that any post that's critical of EA, even if it's lame or unoriginal, gets upvoted, while any post that suggests EA isn't all that bad will get a bunch of downvotes.