Wireless spectrum is sort of a tricky concept to wrap one's head around. Gizmodo's Matt Buchanan lays it out nicely in a highway metaphor:
To radically simplify it, an easy way to think about spectrum is kind of like a highway, divided into lanes. In the US, the FCC designates who and what's allowed to travel in each lane. (Check out the FCC's spectrum dashboard to see who owns what spectrum where.) The FCC typically divides the spectrum into "blocks" (stick with the mixed metaphor here) that are 10- or 20-MHz wide (so a carrier would get, say, a slice from 700MHZ to 710MHz). A standard configuration is for a carrier is to use half of each block to send a signal, and half to receive (outbound and inbound traffic). Each lane/block can only carry so much traffic. So when you get a ton of people pumping a ton of stuff over the airwaves in a small area, you run into issues.
The solution, though, is not simply to build more cell towers for a given frequency ad infinitum—it doesn't actually create more wireless spectrum in the universe for signals to travel on, and in fact, if you crowd too many towers too close together, you get bunch of noise and interference. Basically, you don't paint extra lines on a freeway in order to make way for more cars.
As smartphone customers in areas of congested wireless traffic can attest, the limited amount of available spectrum is a problem. FCC Chairman Julius Genachowski refers to a "looming spectrum crunch" as a result of the limits. As it happens, many broadcasters and other private companies own lots of spectrum they're not using for whatever reason, which seems an inefficient use of a limited resource. So in March, the FCC laid out its National Broadband Plan, which aims to secure 500MHz of spectrum (it's a lot) from those private companies within 10 years.
Today, the White House issued a statement strongly backing the plan, laying out a few more specifics that had remained unclear (namely how the government plans to get the spectrum, and what they plan to do with it). The federal government stated they will not force any private company to give up spectrum it owns—local TV broadcasters were particularly concerned and vocal about this—instead offering an optional auction, in which the company will of course take in revenue for auctioning off spectrum. But 45% of the spectrum will come from various agencies within the government itself.
The government will also take part of the revenue from these auctions (sort of an agent's cut, I suppose), and that money will go toward improving communications in police, fire departments, and other public services. And that's no small amount of money—it's likely to rise into the tens of billions of dollars.
Said Lawrence J. Summers, director of the National Economic Council and senior economic adviser to the President:
"This initiative will catalyze private sector investment, contribute to economic growth, and help to create hundreds of thousands of jobs. This policy is a win three times over. It creates prosperity and jobs while at the same time raising revenue for public purposes like public safety and increasing our ability to compete internationally."
So where is this spectrum going? Most of it will be bought by companies like AT&T and Verizon, who need it to expand and improve speed and reliability on their wireless networks. Some will be kept unlicensed, essentially public, for startups who don't have the money to purchase spectrum outright.