Daemons are programs that run in the background and either service requests or poll for various environment indicators, and then act accordingly. Once a request is received, it may be queued up or forked to run in a different thread or process. Daemons are often started via Upstart or init, which are started by the kernel in early startup.
service command will run init scripts in
/etc/init.d with a command. Usually, it is
reload. Upstart (which provides Ubuntu's
init) is in charge of managing these daemons automatically.
Daemons are also called services (especially in a Windows context, where the term "daemon" is rarely if ever used), but should not be confused with the concepts of online services, services in systems architecture, nor (though related) "software as a service".