A callable bond includes a special provision that allows the issuer — whether a company or government body — to repay the bond's face value and redeem it early, before its originally scheduled maturity date, typically at a predetermined price. This gives the issuer flexibility, but takes some certainty away from the investor holding the bond.
Issuers generally choose to call a bond when interest rates in the broader market have fallen significantly since the bond was issued, allowing them to refinance their debt more cheaply elsewhere — which unfortunately also means the investor's high-yielding bond gets redeemed early, right when reinvesting that money elsewhere at a similarly attractive rate has become harder. Because of this, callable bonds usually offer a slightly higher yield than a similar non-callable bond, to compensate investors for taking on this early-redemption risk.