The Open Game License (OGL) allows for derivative works of game material to be produced, while allowing the originator to protect their Intellectual Property.
It is usually (although not exclusively) used to open up game mechanics and associated terms for reuse in supporting products by third party publishers while retaining exclusive ownership of setting-specific information. Technically, it can be used to make as much or as little of a game (mechanics, setting, or almost anything else) open for reuse as the licensor wishes.
It was originated by Wizards of the Coast for the 3rd Edition of Dungeons and Dragons, in order to allow for third party support of that game. While the necessity of such a license can be questioned (game rules are not subject to U.S. copyright laws), it provided a safe harbor for third party publishers wishing to make make material compatible with or based upon that game system. Material specified for reuse under the terms of the OGL is known as Open Game Content, or OGC.
Alongside the OGL, Wizards of the Coast released the d20 System Reference Document, or SRD, a sanitized version of the 3rd Edition Dungeons and Dragons ruleset comprised completely of Open Game Content. This was later updated to the 3.5 version of that ruleset.
The OGL has since been included in a number of other games - most notably those derived from the SRD, but other systems have also been opened through the OGL.
The OGL should not be confused with the d20 System License, which allows for additional use of terms and logos trademarked by Wizards of the Coast as well as adding further restrictions on the use of OGL material from the SRD.