Basic Definition

Selvage or Selvedge (British English) is the edge of the denim fabric that is usually stitched with colored thread. Selvage keeps the fabric from unraveling or fraying. Selvage is also the result of how the fabric is created. Selvage denim is made on old-style shuttle looms rather than modern, projectile looms which makes it expensive to produce nowadays. In simple terms, this means during the fabric weaving process, the cross-thread goes back and forth as one continuous thread, rather than as individual threads for each cross weave.

As a result, selvage denim has a clean edge as opposed to a frayed edge. Modern, single thread weaving has a frayed edge. Believe it or not, most jeans are made with a frayed edge (just take a look at the one’s you’re wearing!). It is said that only the finest jeans are made of selvage denim and that true vintage jeans are recognized by the selvage edge. Today selvage, raw denim is preferred by denim connoisseurs and vintage enthusiasts, who desire a hand-made/old-school construction and an organic finish. 

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History

Traditionally the denim fabric made on shuttle looms that were so narrow that the original denim fabric was only 75 cm wide where the denim is stitched together, only visible when the cuff was turned up. In the 1950’s, when American jean manufacturers saw demand for their product skyrocket, they searched for faster, less expensive methods for producing denim fabric. The normal width for denim is now 150 cm and since jean-makers want to maximize the use of the fabric, the selvage is left out when the garment is cut.
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See Also

Twill
Denim
Japanese Denim
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References

http://www.contextclothing.com/support/selvage_denim.php
Wikipedia, Selvage—http://en.wikipedia.org/wiki/Selvage
The Denim Bible Jeans Encyclopedia II - by Sportswear International
frayed image http://www.treadleon.net/quiltshop/denimquilt/denim5.jpg
http://www.bikudo.com/product_search/details/67390/selvage_denim_fabrics.html
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