An Acronym for Fear, Uncertainty, Doubt.
It is a marketing tactic used against superior competitors in a weaker market position, such as by telling your customers that the competition is inferior, that the next version of your product that will be released tomorrow will have all the same features and more, that the competitor won't be around in 6 months, and other half- and blatant untruths more. The goal is to make people insecure about your competitor and give them the feeling that betting on you is the safe option. The first company to employ FUD was IBM; Amdahl is credited with coining the phrase after he left IBM to start his own company. Funny how times change.
A good example of is MicrosoftCorporation's recent document called CompetitiveComparisons, and their recent "Get the facts" campaign. Other examples that try to discredit Linux are listed on the MicrosoftQuotes page.
See also: LinuxFudDispelled
Digital Research launched their DR-DOS, which was better and cheaper than MS-DOS 5 and received favourable reviews all around. Microsoft reacted by putting a test in a pre-release of Windows 3.1 which came to be known as the AARD code and produced an inconsequential warning message when run under DR-DOS. They also announced that MS-DOS 6 would do all that DR-DOS could and more. In reality, MS-DOS 6 was vapourware at the time. The rumour spread that you'd have problems running Windows on DR-DOS, even though it wasn't true at all. It is questionable whether the MS-DOS 6 that eventually materialized was better than DR-DOS, but Microsoft designed a dealer package that made it more expensive not to bundle Windows with MS-DOS, and left DR-DOS dead in the water. This is believed to be the making of the Microsoft monopoly.