"Dapp" is a blend of the words, or portmanteau, "decentralized application." Dapps are programs, tools, or applications that run on the decentralized Ethereum blockchain.
Most people are familiar with the typical centralized applications they can download and run on their phones or computers. Centralized applications put trust – data, content, account information, vital functionality – into one main entity: typically servers, data banks, or standalone computers. The Ethereum network, however, is community-based, uncontrolled by any single authority. This means Dapps may not be served from one central server, but instead can live on the network.
Regular apps have all their data coming from their own company servers and have one single authority. They require a user login that collects your personal identity data (name, birthdate, address, etc.). In contrast, Dapps can work off the blockchain to function and simply require a private address (a random string of characters that holds no personal information) for users to log in.
Dapps are critical because they can be used to connect buyers and sellers in marketplaces, for sharing or storing files, maintaining a virtual currency, and executing smart contracts all in a system devoid of complete ownership or censorship. Some existing Dapps include image upload and storage tools, ad servers, security tools, and crowdfunding platforms. Other commonly used Dapps are digital wallets, that serve as a tool for managing and using Ether.