In modern genetics, this refers to incomplete dominance.
Historically, this was a short-lived 19th century "arm-chair" biological theory of inheritence, primarily discredited by the experiments of Gregor Mendel. It is similar to the modern idea of incomplete dominance in that the offspring will express a blending of the different traits of the parents. However, while incomplete dominance only expresses this blending in the phenotype, keeping the alleles within the heterozygote distinct (and, thus still inheritable in successive generations), the theory of blending inheritance referred to an actual blending of the genetic material (i.e. in modern terms, alleles would blend together to form a completely new allele). The offspring's trait, from parents with differing traits, in theory, could express itself exactly like either trait from one of the two parents or could express itself as some intermediate mixing of the parental traits. This blending theoretically was a smooth spectrum of infinite possible outcomes. This theory works similar to the way paint mixes. And, like with paint, where two colors, once mixed, become unrecoverable via sucessive mixing with still other colors, the historical theory of incomplete dominance required that at least half of all genetic variances to be completely unrecoverable in successive generations, thus quickly condemning mankind to an ever narrowing spectrum of variation.