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Offsetting penalties are when both teams have committed a penalty on the same play. Offset means the two penalties cancel each other out.
Offsetting penalties only occur on LIVE BALL penalties. These are flags that occur during the play (after or concurrent with the snap, before the ball is dead at the completion of the play). These are penalties that are not whistled dead at the snap, or flags after the play (usually unsportsmanlike, late hits, etc...).
If a live ball foul occurs on both the offense and defense, they 'offset' meaning neither foul will be penalized, and the down is replayed.
If multiple dead ball fouls occur between plays on the offense and defense, ALL fouls are penalized in the order in which they occurred. While it may seem like it wouldn't matter (if both the offense and defense had unsportsman like fouls at the same time during a deadball phase), since they yardage is the same going both ways, there are special exceptions that can happen.
For example, if you have two (one on offense, one on defense, with the offenses one happening first) dead ball unsportsman likes penalties, and the ball is at the offenses 20 yard line, the result wouldn't be at the offenses 20 yard line, but the offenses 25 yard line. The reason is that the 15 yard penalty is first against the offense, and since the ball is inside the offenses 30 yard line, the penalty yardage is half the distance to the goal, which would be 10 yards and place the ball at the 10. Now you assess the defenses penalty, giving the offense 15 yards, so the ball is placed at the 25 yard line.
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