The following is taken from notes given in my photography class. Besides defining what circle of confusion is all about, it provides good insight into the fact that proper camera focusing is about obtaining "acceptably sharp" image.
The depth of field does not abruptly change from sharp to unsharp, but instead occurs as a gradual
transition. In fact, everything immediately in front of or in back of the focusing distance begins to
lose sharpness - even if this is not perceived by our eyes or by the resolution of the camera. Since there is no critical point of transition, a more rigorous term called the "circle of confusion" is
used to define how much a point needs to be blurred in order to be perceived as unsharp. When the
circle of confusion becomes perceptible to our eyes, this region is said to be outside the depth of
field and thus no longer "acceptably sharp."
.... An acceptably sharp circle of confusion is loosely defined as one which would go unnoticed when enlarged to a standard 8x10 inch print, and observed from a standard viewing distance of about 1 foot.
The circle of confusion therefore sets the boundary of what we want to appear sharp (i.e. depth of field). Theoretically then, it is impossible to have perfect focus for the entire image unless the subject is in a single focal plane (e.g. a smooth wall perfectly parallel to the sensor and the lens). That does not usually happen as we live in a three dimensional world. The best we can do for focusing is to ensure that the desired focus area in an image is "acceptably sharp" as appears to the naked eye.