CAPTCHA stands for "completely automated public Turing test to tell computers and humans apart." What it means is, a program that can tell humans from machines using some type of generated test. A test most people can easily pass but a computer program cannot.
You've probably encountered such tests when signing up for an online email or forum account. The form might include an image of distorted text, like that seen above, which you are required to type into a text field.
The idea is to prevent spammers from using web bots to automatically post form data in order to create email accounts (for sending spam) or to submit feedback comments or guestbook entries containing spam messages. The text in the image is usually distorted to prevent the use of OCR (optical character reader) software to defeat the process. Hotmail, PayPal, Yahoo and a number of blog sites have employed this technique.