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IRC stands for Internet Relay Chat and as a standard, it is older Net standard than WWW, being developed in late 1980s in Finland. IRC and its variations are commonly known as "chat rooms", but very often the whole idea is being missed when describing IRC like that.
Unlike conventional website-specific chats, IRC is actually a network of servers that are connected to each others constantly, creating an interconnected network between these servers. Users can then login to any of these servers by using an IRC client (most popular IRC client at the moment is called mIRC which you can download from here). After being connected and selected their nickname, users join to channels (or chat "rooms" like non-technical people and media love to call them). There can be virtually unlimited number of channels -- each channel is unique by its name, such as #afterdawn. The hash symbol (#) traditionally always indicates that it means IRC channel name. Each channel can have virtually unlimited number of users -- each user can be connecting to the channel from different IRC server or from same server or mix of these. Normally each channel has one or more operators that can "kick" people, i.e. remove them from the channel, assign other users as operators, change channel's topics, etc. Channels can also require a password, can be hidden from public channel listings and can require an invitation from existing channel users before a new user can join.
Biggest difference between IRC and instant messaging applications is the fact that all the users on channels normally see everything other users talk -- i.e. it is real-time, public conversation area (whereas discussion forums aren't real-time and instant messaging is normally only between two parties, although most of the IM applications support IRC-style group chats as well). In addition to this, IRC also supports IM-style private messaging between users as well and many old-time IRC users see IM apps just a sidekick of IRC phenomenom.
Apart from being a network of interconnected servers and the protocol for servers and clients to communicate with, IRC also means the whole thing -- all the IRC networks (as there are several IRC networks where servers are interconnected to other servers within that network, but that network is not connected to other IRC networks, thus creating separate IRC networks). Biggest IRC networks at the moment are called EFNet, IrcNet and QuakeNet.
IRC as a standard doesn't suppopt graphics, audio, etc. But it supports file transfers between connected users, using a method called DCC to transfer data.
Related software tools
The de facto IRC client for Windows users.