Stands for "Potentially Unwanted Program." The term "PUP" was created by McAfee, a security technology company, to describe unwanted software. A PUP is similar to malware in that it may cause problems once it is installed on your computer. However, unlike malware, you consent to a PUP being installed, rather than it installing itself without your knowledge.
Most PUPs are spyware or adware programs that cause undesirable behavior on your computer. Some may simply display annoying advertisements, while others may run background processes that cause your computer to slow down. The label "potentially unwanted program" is a fitting description of these applications because you may not find out about their obnoxious behavior until after they are installed.
McAfee coined the term "PUP" to avoid labeling programs as malware, when users consent to downloading and installing them. However, the term is often seen as a euphemism for malware since most users want to remove PUPs immediately after they have been installed. Since PUPs are often installed along with legitimate applications, be careful not to agree to install extra programs if you don't know what they are.
Updated: September 6, 2011