Customer segmentation, also called Market segmentation, is classifying your customers into different segments based on similarities or differences in their need. To segment, you need to collect as much data as possible about how your customers are using your product, which features they value and where are they in relevant point in life statistics.
Relevant point in life statistics means understanding where customers of your product generally are in their life. For example, if you are selling products to new mothers, the relevant point in life you are most interested in is that they just had a baby. Additionally, you may consider segments as pregnant women, couples seeking adoption and new grandparents.
A simple example is a service that provides roofing to home owners. In a town with 100,000 residents, there may only be 20,000 owner occupied residences. That is one rather large segment. Depending on the business, this segment can also be divided by neighborhood, considering that most homes within a neighborhood are not only of similar age but the owners are generally in similar income brackets. Another large segment could be owners of rental homes.