Frame Relay is a layer two encapsulation used for wide area serial links. Frame Relay works through packet switching, typically through the provisioning of permanent virtual circuits (PVC).
Frame Relay improved the price/performance ratio of the earlier X.25, largely by eliminating many of the link negotiation and error correction features built in to X.25. This was feasible because Frame Relay was introduced in an era when the physical layer was becoming more reliable. Nevertheless, the Quality of Service (QoS) features of Frame Relay are limited in comparison to dedicated circuits or alternative link layer protocols like ATM or MPLS. Although still in wide deployment, in recent years Frame Relay has been losing market share to MPLS in particular.
References:
http://www.dcbnet.com/notes/framerly.html
http://docwiki.cisco.com/wiki/Frame_Relay
http://bandwidth.com/wiki/article/VPN's,_MPLS_or_Frame_Relay