Metabolism is the enzymatic conversion of one chemical compound into another. Most drug metabolism occurs in the liver, although some processes do occur in the gut wall, lungs and blood plasma.
Overall, metabolic processes will convert the drug into a more water-soluble compound by increasing its polarity. This is an essential step before the drug can be excreted in the body fluids such as urine or bile. Only a very few drugs can be excreted first without being metabolised (See the tutorial on drug excretion for more information).
On the whole, as drugs are metabolised their therapeutic effect diminishes.