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My wife had the test done with our second son. The doctor collects some amniotic fluid and they usually test for genetic disorders or chromosonal abnormality (example down syndrome). The test is usually done betwenn 16 and 20 weeks. Although you sometimes hear that the risk is 1 in 400 when I looked at the data it was not conclusive as they didn't properly normalize for people that might have had a problem without it.
Here is some info on it.
http://www.medhelp.org/Medical-Dictionary/Terms/1/003921.htm