Sells small in-game items or other things of value to players for real cash, usually with the intent of funding the game's servers, maintenance, and continued development for otherwise free product.
Alternate name: Micropayments
The first video game about Microtransactions was released on January 22, 2002.
Generally these are items that make your life easier in the game (temporary exp rate boosters, more powerful healing items than can be found in-game, etc.), or give your character(s) wider range of customizability (clothes, color changing items, hairdos, etc.), turning real cash into in-game cash, and so forth.
Some card-based games capitalize on selling cards, possibly as the only method of getting them, making the games rather dull unless you spend money on the game, which is quite a departure from the other instances where spending money is far from required to enjoy the games.
This practically never includes things that you can find in-game, except for the money bit.