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Pulleys
Depending on a car's design, there can be a number of pulleys attached to the engine. The only puprose of these pulleys is to transfer some engine power to a belt-driven accessory such as the alternator, the power steering pump, the water pump and the air conditioning system. Using one or more belts, the engine crankshaft drives the other pulleys in order to provide power to the attached accessories, therefore the more power is transfered to the accessories, the less power is available from the engine. There are 2 ways to reduce this engine drag.
Electrical Performance
First, an accessory can be converted from being mechanically driven (via belts and pulleys) to being electrically driven. This is a common substitution for water pumps and power steering systems, increasing the load on the alternator to provide the extra electrical power, but decreasing the load on the engine for mechanical power.
Lightened Underdrive Pulleys
A second way to reduce engine drag is to replace the pulleys themselves by other pulleys that require less engine power, and there are 2 flavors of these: lightened pulleys and underdrive pulleys. Lightened pulleys are made of a lighter material (usually aluminum) than the stock pulleys (usually steel), thereby reducing their inertia (or "rotating mass"). Something with less rotating mass will need less power to be made to turn. Underdrive pulleys are lightened pulleys than also change the diameter of the pulleys in order to make an accessory pulley turn slower ("underdrive") than factory specifications1. This is typically accomplished by smaller crankshaft pulleys, larger accessory pulleys or a combination of both. Although underdrive pulleys can free up to 20% more engine power compared to lightened pulleys, the greatest power gains are made through lightening the pulleys, underdriving simply adds a bit more.
Safety
It must be understood that manufacturers tend to provide more drive to an accessory than is necessary, therefore an accessory can typically support 15% to 25% of underdrive safely. It must also be understood the engine itself will still produce the same power, lightened or underdrive pulleys simply use less engine power to drive the accessories, leaving more engine power available to drive the car itself. Finally, not all engine designs can benefit from underdrive or lightened pulleys. Indeed, an engine must be internally balanced in order to safely benefit from underdrive or lightened pulleys, since externally balanced engines rely on crankshaft pulleys as calculated counterweights.
References