Italy shuts down in August for “ferragosto”

I keep hearing that Italy shuts down in August for “ferragosto”...what does that mean?

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Theoretically, it means that Italians pretty much take all August off and take holiday because it gets so hot.  The reality to me is that in the tourist cities and major areas, maybe 1% of things are closed.  In the smaller towns and areas, you are likely to encounter more things closed.