There have been two very different approaches to social explanation since the nineteenth century, and they differ most basically over a distinction between "explanation" and "understanding" or "cause" and "meaning". This distinction divides over two ways of understanding a "why" question when it comes to social events. "Why did it happen?" may mean "What caused it to happen?"; or it may mean "Why did the agents act in such a way to bring it about?".
The verstehen approach holds that the most basic ontology of social life is the meaning of an action. Social life is constituted by social actions, and actions are meaningful to the actors and to the other social participants. Moreover, subsequent actions are oriented towards the meanings of prior actions; so understanding the later action requires that we have an interpretation of the meanings that various participants assign to their own actions and those of others. (Central exponents of this tradition include Weber, Dilthey, Heidegger, Ricoeur, and Gadamer.)
This approach places interpretation of meaning at the center of social inquiry. And it drew much of its methodology and tools of inquiry from the hermeneutic tradition -- the tradition of biblical and literary interpretation stemming from Dilthey and other nineteenth-century German thinkers. This tradition is adapted to the "human sciences" by using the metaphor of action as text. The interpreter (a biographer, for example) considers the many elements of the action, life, or complex of actions, and attempts to arrive at an interpretation that makes sense of the various parts.
A central problem that authors in this tradition wrestle with is the "hermeneutic circle" -- the fact that there is no neutral, external standpoint from which to objectively measure the meaning of a system of signs or actions. Instead, interpretation begins and ends with the given -- the text or the action -- and the only evidence available for assessing the interpretation is interior to the text itself. So it may appear that interpretations are self-confirming -- an unhappy conclusion if we think that social explanations ought to have rational justification and empirical support.
The hermeneutic approach got a large boost from the fertile field of interpretive anthropology in the 1970s and 1980s, especially through the work of Clifford Geertz and Turner. However, there is little evidence of a direct intellectual connection from hermeneutic philosophy to interpretive anthropology.
There are several valid insights that the verstehen approach depends on. Most important is the insistence on the point that social action is meaningful and intentional, and that it is both desirable and feasible to arrive at interpretations of these meanings. Moreover, being able to arrive at such interpretations is often essential to historical and ethnographic explanation. Geertz's interpretation of the Balinese cock-fight and Darnton's interpretation of the great cat massacre both illustrate this point: in neither case would we understand the behavior without a deep interpretation of the significances the participants attribute to their actions.
This said, it is incorrect to imagine that the verstehen approach is inconsistent with the causal approach. Rather, the two approaches are compatible and complementary. It is a fact that human action is meaningful and intentional, and all social science must take account of this fact. But it is also true that actions aggregate to larger causes and they have effects on social outcomes. Meaningful, deliberate action is often the mechanism through which a given set of institutional arrangements (a property system, say) cause a social outcome (slow investment in new technologies, say). So meanings are themselves causes and causal mechanisms (a point that Donald Davidson makes in the case of individual action).
Finally, a social science that restricted itself to hermeneutic interpretation would be radically incomplete. It would exclude from the scope of social science research the whole range of causal relationships, structural influences on action, and the workings of unintended consequences in social processes.