Female dogs are "in heat" when they have entered the fertile part of their reproductive cycle. A heat lasts for 3 weeks on average and a dog will usually go into heat every 6 to 8 months.
Most breeds have their first heat at about 6 months old but it may be earlier or later.
A heat can usually be identified when there is some bleeding from the vagina, a swollen vulva or increased urination. Female dogs do not produce very much blood however, and in a small dog you may not even notice the bleeding.
The first thing you will notice if you have a bitch in heat is that she will attract un-castrated male dogs within a very large radius. Her behaviour will change too, so while she normally wouldn't let males mount her, she almost definitely will while in heat.
Additionally, male dogs will go to surprising lengths to get to a female in heat. While your bitch is in heat it's inadvisable to leave her unsupervised outside, and you'll need to keep her on the lead at all times while on walks. In general, other pet owners you encounter will be able to control their dogs, but the scent of a female in heat can cause aggressive behaviour in some dogs.
The second concern is bleeding. If your dog is producing enough blood to cause a mess you may want to restrict her to easy-to-clean, un-carpeted floors. Just leaving her outside is a bad idea unless you want her to have male visitors (and potentially puppies).
Unless you intend breeding, it is best to have her spayed. Spaying will prevent her from going into heat.
There is some debate about when it is best to spay your bitch. Some veterinarians will advise to let a dog have one heat while others will spay as early as 6 months. Ask your vet which course of action they think is right for your dog.