Collimate means to align and a collimator is a device take light traveling in different directions and make them travel in parallel. (The term is also used for a much different instrument that does a similar process for something other than light, e.g., particles.) Collimated light is light traveling in parallel beams rather than spreading or converging, an example being laser light. In fact, collimation is imperfect and can only be approximated, much as optical images always have limits on their accuracy. Light from an extremely distant object, such as a star, is also close to being collimated, and collimation is used in processes to make an image appear very distant, such as in a flight simulator.
Collimating light that is diverging from a point can be done with a concave mirror (or convex lens) if the curve is just less than enough to focus the light to another point, i.e., at the border between focusing and merely reducing the divergence. A decollimator does the opposite, takes the parallel beams and, e.g., focuses them to a point.
Collimating is used in astronomy optics, often in spectroscopes, which may collimate the light at a focal plane, which produces an image "traveling in parallel", i.e., would show as a focused image on a screen at any distance. This is so the light can be processed in this state, such as being dispersed by a prism or grating. If whatever processing is being done leaves the light collimated, a sensor can be placed in the collimated light path assuming the sensor matches the physical cross section, or decollimation and focusing may be used to match the cross section of the image with the sensor size.
The word collimate is also commonly used in astronomy in another sense, for the process of aligning the optics in a telescope, e.g., aligning the mirrors and/or lenses so as to produce the best possible image.