I have read the Wikipedia article, but I am not really sure what it means, and how similar it is to version control.
It would be helpful if somebody could explain in very simple terms what sandboxing is.
Answer
A sandpit or sandbox is a low, wide container or shallow depression filled with sand in which children can play. Many homeowners with children build sandpits in their backyards because, unlike much playground equipment, they can be easily and cheaply constructed. A "sandpit" may also denote an open pit sand mine.
Well, A software sandbox is no different than a sandbox built for a child to play. By providing a sandbox to a child we simulate the environment of real play ground (in other words an isolated environment) but with restrictions on what a child can do. Because we don't want child to get infected or we don't want him to cause trouble to others. :) What so ever the reason is, we just want to put restrictions on what child can do for Security Reasons.
Now coming to our software sandbox, we let any software(child) to execute(play) but with some restrictions over what it (he) can do. We can feel safe & secure about what the executing software can do.
You've seen & used Antivirus software. Right? It is also a kind of sandbox. It puts restrictions on what any program can do. When a malicious activity is detected, it stops and informs user that "this application is trying to access so & so resources. Do want to allow?".
Download a program named sandboxie and you can get an hands on experience of a sandbox. Using this program you can run any program in controlled environment.
The red arrows indicate changes flowing from a running program into your computer. The box labeled Hard disk (no sandbox) shows changes by a program running normally. The box labeled Hard disk (with sandbox) shows changes by a program running under Sandboxie. The animation illustrates that Sandboxie is able to intercept the changes and isolate them within a sandbox, depicted as a yellow rectangle. It also illustrates that grouping the changes together makes it easy to delete all of them at once.
Now from a programmer's point of view, sandbox is restricting the API that is allowed to the application. In the antivirus example, we are limiting the system call (operating system API).
Another example would be online coding arenas like topcoder. You submit a code (program) but it runs on the server. For the safety of the server, They should limit the level of access of API of the program. In other words, they need to create a sandbox and run your program inside it.
If you have a proper sandox you can even run a virus infected file and stop all the malicious activity of the virus and see for yourself what it is trying to do. In fact, this will be the first step of an Antivirus researcher.