A type of scavenger hunt in which participants are given the geographical coordinates of a cache of items and they use the Global Positioning System to locate the cache.
"Caches have been planted in 50 states and in 55 countries, from local parks to a sunken tugboat in the Red Sea. No matter that many of the 'treasure boxes' are filled with spare batteries, Pez dispensers and the like: 'People are planning vacations around geocaching,' says Webmaster Jeremy Irish."
—Laura Bly, "The Travel Web," Newsday, July 15, 2001
"Treasure hunts have gone high-tech, with owners of GPS tracking systems pioneering a new craze. Known as geocaching, participants bury a box containing 'treasure', log the co-ordinates, then upload the data to the geocaching website. Once the box is found, players must remove the item inside, add one of their own, and write about their escapades in a journal in the box."
—Mark Prigg, "Treasure chest," Sunday Times, October 8, 2000
The earliest citation for today's term also explains a bit more about how the hunt works.
In case you don't know, the Global Positioning System (GPS) is a series of satellites that enable people equipped with the appropriate GPS receiver to pinpoint their exact latitude and longitude anywhere on Earth (accurate to within about 20 meters on a good day).