Traditionally, in a naval battle, each fleet would form a line of battle, parallel to each other, and fire away until someone surrendered, or, more commonly, escaped. This was a good defense tactic and also meant that, as ships are firing at one opponent they would avoid hitting a friendly ship. However, it's major flaw was that it rarely accomplished decisive results- not at all what Nelson wants!
In his plan for Trafalgar, he decided to separate his fleet into three divisions, and each would concentrate on one section of the enemy's fleet, bringing about a melee battle, in which, fighting at close quarters with individual ships, Nelson was taking advantage of the superior British gunnery and ability to maneuver, and allowing it to take its toll on the enemy, resulting in a decisive victory for the British.
In practice, Nelson's fleet was split into two divisions rather than three, probably because he didn't have the number of ships required for three divisions.
When he explained 'the Nelson Touch' to his captains, Nelson described that 'it was like an electric shock! Some shed tears, all approved- it was new, it was singular, it was simple!'
But despite what Nelson said, it must be noted that there was nothing new about his battle plan. Breaking the enemy line was a tactic that had previously been done several times, for example at the Battle of the Saintes, 2 April 1782, or at the Battle of Camperdown, 11 October 1797. And concentration on one part of the enemy fleet had already been used by himself at the Nile in 1798.
Another aspect that was new was that Nelson ordered his fleet to cruise in the same order that they would go into battle. This probably arose from the remembered frustration at Hyeres in July 1795, during which Admiral Hotham allowed the French fleet to escape by wasting time ordering his fleet.
The origin of the expression, 'The Nelson Touch' is unknown, but it is suspected that it may have been inspired by a line from one of Shakespeare's plays, Henry V. 'A little touch of Harry in the night' was used to describe the King calming down his frightened men on the eve of battle.
Another theory is that it may have been a sexual reference. Nelson wrote in one of his letters to Lady Hamilton that 'the Nelson touch, which we say is warranted never to fail', suggesting that it was a private joke between the two lovers.
Nelson's exceptional leadership and the way he provoked admiration and trust in his fellow officers also became known as the 'Nelson Touch'; although Nelson never really spoke of that himself.
He often refered to his captains as his 'band of brothers' another reference from Henry V. In the play, Shakespeare portrays the King as someone who was well loved was a source inspiration to his men, and it certainly seems that Nelson aspired to be like him.