Collection accounts end up on your credit report as a result of an unpaid credit account. For example a credit card, once it's past due will read as "past due" on your credit report. It will read as "1-times 30-day past due" after the first thirty days and "2-times-30 days past due" after the second time you are thirty days late.
The credit card company usually waits until an account is 120-days past due before they "charge-off" the account. This simply means that they will consider the account as a loss and write it off on their books. They do this so that they can receive the tax benefit associated with the loss.
This is recorded on your credit report as a "charge-off". After this has happened and the credit card company is still unable to collect on the account, they might sell the debt to a third party debt collector for pennies on the dollar.
The debt collection account is then recorded on your credit report under this new debt collectors company. It's important to also keep in mind that these companies don't always follow the laws that govern them, the Fair Debt Collections Practices Act. That's why you want to make sure that they have the right to collect any money from you before you pay them.
Some collection accounts end up on credit reports as a result of mistakes, so take what you see on your credit report with caution before you decide to pay some collector asking you to send them money in reference to a debt!