In layman’s terms, bitcoin is digital currency.
To expand further, it’s digital currency that allows internet users and e-tailers to make purchases and process transactions with a significant level of anonymity.
Bitcoins are universal in that they aren’t tied to any country or subject to regulation. The exchange rate tends to fluctuate relatively consistently because of this, making knowledge of just how much something will cost you difficult to be sure of. Unlike credit cards, however, you never have to worry about any additional associated fees; so the bitcoin price listed is the exact price you pay.
Acquiring bitcoins can be tricky at times, but numerous “bitcoin exchanges” have been set up to make buying or selling bitcoins easy. People can send bitcoins as they would transfer cash digitally, storing their savings in a digital wallet. Unfortunately, bitcoin is not insured the same way your money in your account is insured by your bank or the FDIC, so having or keeping bitcoins is still far more risky for the time being than traditional currency.
For more information on Bitcoin, check out the official Bitcoin FAQ.