DE is as GracebyDesign pointed out, diatomateous earth.

This is a fine powder made of the shells of diatoms... little critters that lived millions of years ago. It has properties like charcoal, which is also used for filters. It is used as the filter media in DE pool filters and gives dramatically better filtering than sand.

Here is a great chart showing the differences
http://www.poolplaza.com/pool-filter-comparison-2.shtml

Dead algae are pretty small and sand filters do not do a great job of getting them out, so adding a bit of DE puts a thin layer on top of the sand and improves the filtering ability. It gets washed away when you backwash so if you like what it does, you need to add a few cups after each backwash.
DE is powder like and will blow around pretty easy, and is not good to inhale so use caution when putting it into the skimmer and watch where the backwash goes ... preferably down a drain.