It's a polite and common way to tell someone to sit down, often used with children or pets. It can also be used in more formal situations, but it's generally considered more informal than "kudasai" (please) when asking someone to sit down.
Here's a breakdown:
* お (o): A polite prefix
* 座 (za): Means "to sit"
* り (ri): A grammatical ending that indicates a command
So, "osuwari" essentially means "please sit down".