A niche market is a specialized market segment where you cater to the demand of products/ services that are not currently being supplied to by the main suppliers. It is essentially a narrowly defined market segment.
Why establish a niche market? Simply because of the great advantage of being the sole supplier - a monopoly, or a single dominant supplier - in your target market. Small businesses may be unaware of that particular niche while large businesses won't bother with it. The trick is to capitalize on this and develop a niche market where customers are accessible and which isn't already owned by an established vendor.