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What is geocaching?

Geocaching basics

Geocaching (pronounced /ˈjēōˌkaSHiNG/) is a 21st century version of hide and seek; a kind of hi-tech scavenger hunt. 

Typically it involves someone hiding a container and then telling others where it is hidden. The hider is  known as the "cache owner" or "CO" and the container is the geocache, or "cache" for short.
A geocache is typically a waterproof container the size of a lunch box, but it may be smaller than a thimble or as large as shipping container. 
Most geocaches contain at least a log ( a book, scroll or sheet) and perhaps a pen/pencil and swappable items.
To be able to tell others know where the geocache is hidden, the hider uses a GPS receiver to capture the geographic coordinates of the location. These coordinates consist of two numbers - the latitude and longitude, expressed in degrees and decimal minutes. The cache owner then publishes a description of the cache along with the coordinates, on any of several websites.
Most geocaches are listed on Groundspeak's intenational website, but there are several others including Australia's
Geocacher finders use one of the listing websites to identify their nearest geocaches. They can look them up on a smartphone app and use the phone's navigation feature or enter the geographic coordinates into a dedicated GPS receiver and then 'follow the arrow' on the receiver to arrive at the cache location. The location is referred to as "ground zero" or "GZ" for short. 
Although the phone or GPS receiver will guide the geocacher to the general location, the finder must still search for it. The GPS system has some limitations, but will typically be within 10m of the actual location. Also the geocache is usually hidden, often in very creative ways, to ensure non-geocachers do not find it.
After the geocache is found, the finder signs the log to identify themselves and may swap items in and out of the cache. The finder then rehides the geocache, as they found it. 
The finder returns to the geocache listing website and writes something about their visit on the webpage for each geocache they've found. Some finders do this 'in the field' using a smartphone, others wait until the end of the day and do all their web logging from a computer at home. 

Here is a great video from Groundspeak explaining what the pastime is all about.