As seen in the graph we are not just influenced by people, dispositions or personality but also by situations.  However, constantly being influenced by people and personalities tend to make the focus the individual.  This thought processed which is developed as a result of social influence causes us to error. We are then socially conditioned to blame a person or a certain personality negating the situational factors.  Situational influence or the "power of the situation" shifts the focus from the behavior of the individual to the power of situations on a person's behavior. 

In other words, people tend to have a default assumption that what a person does is based more on what "kind" of person he or she is, rather than the social and environmental forces at work on that person (wikipedia,2006).

The following example was taken from: http://en.wikipedia.org/wiki/Fundamental_attribution_error#Example

Example

People often lie about little things, and make justifications for it. The reasons may be that it will spare someone from hurt, or make a situation less complicated, or that it's unimportant to anyone else. However, equally often, people are critical about others who are not fully honest, arguing that there is no excuse for it. This is an example of the fundamental attribution error, an inconsistency based on perspective.

Layman's terms

The two opposing perspectives:

1. When I do well it is because I am talented and good (internal cause: my credit), when I do poorly it is because of bad luck (external cause: not my fault).

2. When you do well it is because you are lucky (external cause: not your credit), when you do poorly it is because you are bad, unskilled, no talent, poor character, etc. (internal cause: your blame).

Examples:

Example a: I stub my toe because the object was in my way (external cause), someone else stubs their toe because they weren't paying attention (internal cause).

Example b: I do well on a test because I studied hard and am smart (internal cause), someone else does well on a test because the test was easy and the teacher liked them (external cause).                                                                                     Next Page