HotPlugging refers to insertion and removal of hardware and peripherals while a computer is running ("hot").
BigIron machines which typically must be running 24 hours a day for mission critical applications allow insertion and removal of almost all the internal hardware, including RAM and CPUs, although obviously they must first be disabled by the software.
"hotplug" is also the name of a linux package for managing the drivers/software side of things when hardware changes take place. For example, when USB devices are added or removed. There are other types of devices supported (such as CardBus/PCMCIA cards), but USB is the predominantly used type.
The way it works is that based on a device's identifying features, you can load different modules and run different scripts.
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