SHTML is a file extension that lets the web server know the file should be processed as using Server Side Includes (SSI).
(HTML is...you know what it is, and DHTML is Microsoft's name for Javascript+HTML+CSS or something).
You can use SSI to include a common header and footer in your pages, so you don't have to repeat code as much. Changing one included file updates all of your pages at once. You just put it in your HTML page as per normal.
It's embedded in a standard XML comment, and looks like this:
<!--#include virtual="top.shtml" -->
It's been largely superseded by other mechanisms, such as PHP includes, but some hosting packages still support it and nothing else.
You can read more in this Wikipedia article.