Ransomware is a form of malware in which rogue software code effectively holds a user's computer hostage until a "ransom" fee is paid. Ransomware often infiltrates a PC as a computer worm or Trojan horse that takes advantage of open security vulnerabilities. Most ransomware attacks are the result of clicking on an infected e-mail attachment or visiting a hacked website.
Upon compromising a computer, ransomware will typically either lock a user's system or encrypt files on the computer and then demand payment before the system or files will be restored.
Also see The Difference Between a Virus, Worm and Trojan Horse and Rogue Anti-Virus Software Explained in the Did You Know? section of Webopedia.