That just means that someone has already put in a higher bid than you did.
You can bid the most that you would want to pay for the item, but you only pay the one bid amount over what the closest bid to you was.
For example; If the starting bid is at $0.00 and the most you would want to pay is $5.00. When you enter your maximum bid, the amount of the bid will only show in one increment, say $1.00.
The next person will see that 1 person (you) has bid on it and the bid amount is now at $1.00 (not zero). If no one else bids on the item you would only have to pay the $1.00.
However, if the next person is willing to pay $5.01, then that's what the bid amount will go up to. You will no longer be the highest bidder.
As long as your bid is under what the highest bid is you will get the notice that you have been outbid. It's an automated system and you don't have to sit by your computer and continue to bid, unless of course you would like to!
I hope I haven't confused you too much! Good luck!
