I would generally support Ayesha's answer, in that it explains that decoherence is instigated by the microscopic interacting with the macroscopic.
As with many things in Quantum Physics, this is evidently true at the extremes (e.g. putting a detector in the path of a photon in the dual slit experiment), but it is not clear when something is considered macroscopic. For example, somewhere between coupling an atomic spin to a single other atom and coupling to a million other atoms, we (and presumably the universe) say that decoherence has occurred, and the wavefunction has collapsed.
One answer is to look at the Density matrix. Consider that a pair of photons have a 2x2 density matrix. If we entangle the photon polarisations like-for-like, then we have either HH or VV, which would be a density matrix thus:
H 0.5 0
V 0 0.5
Von Neumann tells us that measurement always increases entropy inside the system, thus decreasing the quantum information contained in it. So even if we perform a measurement that is unrelated, like checking for HV states, we start to corrupt the matrix. So perhaps it becomes:
Second H 0.44 0
V 0.1 0.46
Suppose we further entangle this pair with another pair (still in its clean state), such that if the second photon of the first pair is V, then so is the first photon of the second pair (and the same for H):
HH HV VH VV
VV 0.1 0.46
If that second pair was a bit sullied, and looked more like:
HH 0.48, HV 0.03, VH 0.07, VV 0.42
Then we have:
HH HV VH VV
HH 0.48x0.44 0.48x0
HV 0.03x0.44 0.03x0
VH 0.07x0.1 0.07x0.46
VV 0.42x0.1 0.42x0.46
HH HV VH VV
VH .0140 .0646
VV .0842 .3873
We can see how the original purity of the superposition is being polluted by the entropy, and as the space increases with the addition of more particles, this will further erode the original state. Note in particular how the HHHH state has P=42.34%, while the VVVV state has P=38.73%. Clearly this erosion will erode one of the original states more than the other, so after a few interactions we might expect one to disappear below the noise floor, leaving a single preferred state. In the experiment, this would come out as a 'decoherence' in which the increasing interaction with the environment dissipates the original superposition through an ever larger space until random noise takes over.
The signal vs noise metaphor is apt, in that it appears to be the quantum information stored in the states that it eroded. This is the origin of the Quantum Error Correction methods designed to use encodings to sustain a coherent state for longer.
Thus, 'observation' really means the coupling of a quantum state to a much larger system, and in doing so polluting the quantum information stored within with entropy and thus undergoing decoherence.