This tool was announced by the head of Google’s web spam team Matt Cutts, on 16th October, 2012, Google has officially announced a new tool to disavow Links that will allow the webmasters to remove bad/problematic/low-quality/paid links pointing to their websites.
If your website has been penalized by Google due to Google’s Penguin OR un-natural links penalty then you need to prepare a list of suspicious links pointing to your website and request Google to Disavow those links using this tool.
Once your request is placed, Google will take several weeks to re-crawl and re-index the URLs you disavowed before your disavowals go into effect.
After several weeks, you need to file a reconsideration request so the manual webspam team can check whether your site is now within Google’s quality guidelines, and if so, they will remove any manual actions taken on your website.