Music is basically a sound wave. So your stereo takes the wave that is encoded on the CD, but in order to make it loud it needs to amplify it. The stereo and the amplifier take the sound wave then and increase the amplitude of the wave while maintaining the proper frequencies. Another way to think of it is that sound waves are a form of energy, and the amplifier is adding energy to the wave so that the music sounds louder. Clipping then when the frequencies of the sound waves become distorted because of the amplification. There are a couple of ways this can happen. One is that your amplifier can't amplify that much, so it basically gives up and gives out distorted sounds. Another is when your speaker drivers are maxed out from the amplification, so the speakers give up and play distorted sounds.

This is my understanding of clipping....if anybody wants to add or correct go for it