Most of the time, this term is referring to a game that…
…is between 3 and 10 megabytes in size (56K modem users usually won’t be able or willing to download anything bigger).
…sells for around $20 in the impulse buy zone. About the same as a CD, or a cheap date.
…works on ancient computers with equally ancient operating systems.
…is exclusively distributed online through channels like MSN or RealArcade.
…has a vastly different audience than retail PC/console games.
…is developed for a fraction of the price and resources as a big retail game.
Also, casual games will frequently have a web-hosted “teaser” that players can play forever for free, with a more full-featured “deluxe” version that is downloadable. The deluxe version is almost always copy protected by the distribution channels, and limited in some way until purchased (often a simple 60 minute timeout). And in many cases, the old shareware model still works, nagging the user with guilt screens to pay.
That’s a lot of constraints. Most of the time, we’re ruling out requiring a 3D card. If there’s 40 hours of gameplay, it better reuse a lot of art, because it just won’t fit into 5 megs. 8000 lines of voice-overs are out of the question. And forget about using an expensive middleware solution – while dropping $50K on a physics engine in a $10 million Xbox title may be no big deal, it will instantly destroy the budget of a casual game.