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Fornication refers disapprovingly to any sexual activity outside of the confines of marriage, including pre-marital sex and adultery.
In the context of the laws of states of the United States, fornication is generally defined as (vaginal) sexual intercourse between two unmarried persons of opposite sex, and has historically been a crime. However, most of those laws have been repealed or are not actually enforced nowadays. In view of the decision of the Supreme Court in Lawrence v. Texas it is most likely that laws against fornication are also unconstitutional.
In many Muslim countries, fornication is a felony, and may be very severly punished. See Islamic Law.
The word is often used in a biblical context, where its meaning is open to intepretation. The etymology of the English word leads to the Latin word fornix, meaning "an archway" or "vault" (a reference to a location in Rome where prostitutes could be solicited). Scripture also uses the word to refer to a more generic failure to follow the word of God.
The origin of the word leads to a common usage to specifically mean "whoredom" rather than general extra-marital sex.