As you may have read in my livejournal, I am an avid geocacher. I've been active in this hobby since April 2001 and have visited over 28,000 geocaches in 10 States and DC.
The Geocaching website, and the Geocaching FAQ in particular, has all the details.
Geocaching is a game where a geocacher hides a geocache container at an interesting location. (typically in a public park or forest, but some have placed caches in urban areas, or on private property with permission) Then the geocacher posts the coordinates to the Geocaching website so that other geocachers may use their handheld GPS receivers to locate the geocache. That's for a traditional cache. Of course, there are a number of variations on the theme. This page provides a rundown on all the types of caches there are.
As an example, here's the webpage for one of my geocaches. As you can see the coordinates (N39°... W075°...) are listed near the top of the page. Below the preamble, there is a description of the area and below that, there is an encrypted hint. And below that, there are log entries from geocachers who have visited the geocache. The log entries are where they share their adventures in getting to the geocache. Some geocachers have uploaded pictures they have taken to their log entries.
Geocaches come in many shapes and sizes. Here are some common ones:
Of course, there are geocaches hidden in many more creative ways. So you should keep an open mind when searching for them.
The Groundspeak Geocaching Logo is a trademark of Groundspeak, Inc. Used with permission.