The term webcam is a combination of "Web" and "video camera." The purpose of a webcam is, not surprisingly, to broadcast video on the Web. Webcams are typically small cameras that either attach to a user's monitor or sit on a desk. Most webcams connect to the computer via USB, though some use a Firewire connection. Webcams typically come with software that allows the user to record video or stream the video on the Web. If the user has a website that supports streaming video, other users can watch the video stream from their Web browsers.
Webcams can also be used for video chat sessions with other people. Instead of broadcasting the video on the Web, users can set up a video chat session with one or more friends and have a conversation with live audio and video. For example, Apple's iSight camera, which is built into Apple laptops and iMacs, allows users to video chat using the iChat instant messaging program. Several other chat programs also work with webcams, allowing users to set up video chat sessions with friends.
Since streaming video over the Internet requires a lot of bandwidth, the video stream is typically compressed to reduce the "choppiness" of the video. The maximum resolution of a webcam is also lower than most handheld video cameras, since higher resolutions would be reduced anyway. For this reason, webcams are relatively inexpensive compared to most video cameras. And while they may not be ideal for filming a movie, webcams are great for video chat sessions with friends.