Compressor surge is:
is a complete breakdown in compression resulting in a reversal of flow and the violent expulsion of previously compressed air out through the engine intake, due to the compressor's inability to continue working against the already-compressed air behind it. The compressor either experiences conditions which exceed the limit of its pressure rise capabilities or is highly loaded such that it does not have the capacity to absorb a momentary disturbance, creating a rotational stall which can propagate in less than a second to include the entire compressor.
Copied from the wikipedia as my explanation can be horrible.
This is a visual explanation:
http://www.youtube.com/watch?v=nCj6Spwl1CU
That ring makes the air go though the compressor housing without those turbulences, so it has a constant flow of air. It's a must for big boost applications.
