What does Localization mean?

I'm trying understand what does localization mean. To
my understanding it, here is my explanation and
correct if I'm wrong. If a software for example Adobe
software has multiple language, it means it can be
switch to praticular languages like Spainish,
Chinese, and English.

Yes, localization means that the menus and dialogues for a particular application or the OS can be switched to the language used locally. For example, OS X itself comes with 15 localizations -- they are switched by changing the topmost item in system prefs/international/languages. Most Apple applications, such as Mail, also have multiple localizations, and they will switch automatically to match that of the OS. Some apps, like AppleWorks, only come in one language at a time, and for a different localization you need to install a different version of the app.

Localization has nothing to do with whether you can type or read a particular language in a particular app.

Okay! So if I would buy an like Adobe in Japanese and
install on OS X, it will be fully in English?

You will need to ask Adobe about that. Like I said, some apps come in only one language at a time, and in that case, you would need to buy another version of the app to have English menus, etc. Neither OS X nor Apple have anything to do with whether Adobe apps come with multiple localizations. You might want to ask in the Adobe forums:

http://www.adobe.com/support/forums/