WordPress plugins are bits of software that can be uploaded to extend and expand  the functionality of your WordPress site.

What is a WordPress Plugin? from iThemes.com on Vimeo.

Note: One of the primary advantages of using the self hosted  version of WordPress from WordPress.org is the ability to upload and use plugins on your WordPress site. 

Since WordPress is open source software, these are all third party tools that add-on  to what WordPress can do. They’re easy to download and install. Some are premium (there is a fee to purchase them) and others are free. 

Plugins can do things like improve your search engine optimisation, display related posts in your sidebar, do complete backups of your WordPress site or create web forms quickly and easily. 

You can add just about any functionality to WordPress with plugins. There are  currently more than 40,000 plugins in the WordPress directory, so there are a lot of options.