Steganography is the act of hiding something in something else – it’s sort-of related to cryptography, but less effort is made to ensure it’s secure and more effort is made in making it unnoticed.
It could be as simple as hiding a copy of Leisure Suit Larry on a disc labeled “Marv finances”, but that’s rather inelegant. There’s also a common windows trick where you’d concatenate a RAR file on the end of an image – the RAR data is outside the boundaries specified by the image headers, so the image displays correctly – but if you rename it to a .rar file, the RAR archiver will skip over everything until it finds a valid RAR header.
You could hide coded messages inside the various comment fields in an image or video (eg, EXIF).
The downside to these methods is that they too are quite inelegant, and they’re also pretty obvious. The game is up pretty quickly if you look at the file with a hex editor, for example.
When you start coming up with elegant solutions, the results are pretty amazing. I haven’t played with this site too much, but it’s mentioned on Wikipedia among other places. I can’t remember where I saw it, but I remember seeing some really neat modifications to the JPEG format which allowed for some really neat hidden messages that were almost completely undetectable.
The problem is, while it’s cool, I can’t really think of a productive use for it… so I haven’t spent much time looking at it – but it’s still kinda cool when you come across a web based tool to do it for you.