First watch the short video above to get a true example of what foley entails and because the video is awesome.
What is Foley? Foley is a process of recording in sync sound effects for pre-recorded visual material to add sonic realism to a scene. This is done typically in a studio with many props just like in the video. It is the art of making sounds fit the visual that lead to the name Foley Artist. There would also be an engineer to cue and playback to sound and visuals.
Is Foley Common? Foley is used all the time from hollywood blockbusters to indie films that understand the importance of sound.
Why do we need Foley? Foley is needed because in film production there is usually not the time to record all the dialogue and sound effects in a scene, dialogue always comes first. It is also easier to replace sound effects of objects like cups or footsteps. The ultimate reason is control. Control in the edit to completely mix the whole sound scape how you want.