This definition of technology encompasses what people usually think of when they hear the term, but it also includes other factors that impact the production process that are typically not thought of as under the heading of technology. For example, unusually good weather that increases an orange grower's crop yield is an increase in technology in an economic sense. Furthermore, government regulation that outlaws efficient yet pollution-heavy production processes is a decrease in technology from an economic standpoint.
Increases in technology make it more attractive to produce (since technology increases decrease per unit production costs), so increases in technology increase the quantity supplied of a product. On the other hand, decreases in technology make it less attractive to produce (since technology decreases increase per-unit costs), so decreases in technology decrease the quantity supplied of a product.