Duelling is a form of consensual PvP combat. In a duel each character consents to engage in head to head combat. Duels can be one on one or may take place in duelling games, which are FFA (free for all) battles with multiple characters engaged at once.
Dueling was introduced in Patch 1.0.7 released in January 2013.
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Duelling is not PK
Dueling is not the same thing as Player Killing, since PKing is about sneak attacks and non-consensual PvP.
Diablo III does not allow Player Killing.
Duelling Rules
Regular PvP players generally adhere to a list of (informal, largely unwritten) rules. These are generally lists of banned practices, or buggy items that must not be used since they convey an unfair or unbeatable advantage. What is on and off this ever-changing list is not known to outsiders. It's therefore a good idea to read some duelling forums or talk to other players before a fight, to be sure of the ground rules.
Generally speaking, drinking potions or using shrines is not allowed. Originally people used a lot of absorption and damage reduction gear, but that is now often limited.
Most serious duellers in Diablo II kept several sets of spare equipment in their stash, and could change into different outfits depending on the class and build of the character they were duelling.
Duelling in Diablo II
Duelling is not specifically supported in Diablo II. There were no arena game types or special duelling ladders, so players who duelled did it strictly for fun, or word of mouth prestige.
In Diablo II, duels were customarily fought in areas that were cleared of monsters. Which character builds were most effective varied a great deal between patches, and there was seldom any "best" character, since there was too much variety in strengths and weaknesses. Rock-paper-scissors was the way of it, though some rocks were necessarily heavier than others.
A recent guest article on Diii.net discussed how duelling has evolved over time Diablo II, and it's a useful read if you want a more historical perspective.