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In the computer software industry, (and by extension, those who are connected with it) FUD is an abbreviation for Fear, Uncertainty, and Doubt.
FUD was first defined by Gene Amdahl after he left IBM to found his own company, Amdahl: "FUD is the fear, uncertainty, and doubt that IBM sales people instill in the minds of potential customers who might be considering Amdahl products." (quoted in [1])
Eric S. Raymond speaks more about this in [1]:
Opponents of certain large computer corporations claim that the spreading of fear, uncertainty, and doubt is an unethical marketing technique that these corporations consciously employ.
Recently, the term is used most often in relation to Microsoft. The Halloween documents (leaked internal Microsoft documents whose authenticity is verifiable) use the term FUD to describe a potential tactic, as in "OSS is long-term credible ... [therefore] FUD tactics can not be used to combat it." [2] More recently, Microsoft has issued statements about the "viral nature" of the GNU General Public License (GPL), which Open Source proponents purport to be FUD. Microsoft's statements are often directed at the GNU/Linux community in particular, to discourage widespread Linux adoption, which could hurt Microsoft's marketshare.
The SCO Group's 2003 lawsuit against IBM, claiming intellectual property infringements by the open source community, is also regarded by some as being an attempt at spreading FUD. IBM directly alleged in its counterclaim to SCO's suit that SCO is spreading FUD [3].
By spreading questionable information about the drawbacks of less well-known products, an established company can discourage decision-makers from choosing those products over its wares, regardless of the relative technical merits. This is a recognised phenomenon, epitomised by the belief of purchasing agents that nobody ever got fired for buying IBM equipment.
The result is that many companies' IT departments buy software which they know to be technically inferior because upper management is more likely to recognize the brand.
It should also be kept in mind that the term FUD can be abused, to label any criticism as heretical. For example, if a benchmark shows Windows performing better than Linux, it is likely to be denounced as a FUD regardless of its merit.