Pressing Command-H will hide your active application. That is, all the windows of the program will become invisible and allow you to see the application underneath, or the desktop. This can also be achieved by choosing hide from the menu with the name of the application.

However, when you do that, there is no way to tell that an application is hidden by looking at the dock. The icon remains fully visible, unchanged from when the application was in view. With lots of applications open, it gets quite hard to tell which applications are hidden and which aren't.

By modifying a small setting, you can make the Dock show which applications are hidden by displaying them as a semi-transparent icon. To do this, open up the Terminal (Applications/Utilities) and type the following:

defaults write com.apple.Dock showhidden -bool yes

and press enter.

For this change to take place, you have to relaunch the Dock, using Activity Monitor. Do this by loading up Activity Monitor (Applications/Utilities) and typing dock into the search field. Quit the process named dock.

To cancel this change, and return the icons to normal, repeat the above command in the terminal, but replace yes with no.

A simpler and friendlier way to do this is to use Tinkertool, a free utility for changing hidden settings in Mac OS X. This page of screenshots offers a quick way of viewing all the features it has to offer.

From the Tinkertool Site:

TinkerTool is an application that gives you access to additional preference settings Apple has built into Mac OS X. This allows to activate hidden features in the operating system and in some of the applications delivered with the system.