From Joomla! Documentation
A plugin is a kind of Joomla! extension. Plugins provide functions which are associated with trigger events. Joomla provides a set of core plugin events, but any extension can fire (custom) events. When a particular event occurs, all plugin functions of the type associated with the event are executed in sequence. This is a powerful way of extending the functionality of the Joomla! Platform. It also offers extension developers a way to allow other extensions to respond to their actions, making extensions extensible.