A thought experiment is an experiment one can conduct in thought and by experiment I do not mean to make laboratory experiments exclusive; Experimentation such as finding an answer to a cause you do not quite understand or vice versa, finding a cause of an effect or a series of effects. There really are an infinite amount of things you can begin and/or conclude in thought for the mind is a beautiful and infinite thing.

Hellaphunt's answer is a good one. Let me just add here an example of a thought experiment to help illustrate the concept. I am going to use a classic thought experiment, Newton's cannon. This was how Sir Isaac Newton figured out what kept celestial bodies in their orbits. Let us say that you build a cannon on the top of the world's tallest mountain and then fired it off. What happens to the cannon ball? Well, it flies out some distance, but as it is flying gravity is pulling it down toward Earth's center. So, eventually the cannonball strikes the Earth. So, let's add more powder to the cannon. Now what happens when we fire it? The cannon ball travels out further before gravity pulls it down Earth's surface. As we continue to add more powder to the cannon, the ball travels further and further until it eventually travels all the way around the Earth without striking anything and hits the cannon in it's back side. At this point the cannonball has completed one orbit of the Earth. So, bodies that are orbiting other bodies are actually just falling around them with sufficient velocity that they keep missing the central body, but not with enough velocity to get away from it entirely. Now there are couple of reason why this particular experiment has remained only a though experiment (i.e. no one has actually attempted to put something in orbit with a cannon). First of all, this experiment does not take into account the effect of atmospheric drag on the cannonball. The other reason is that the acceleration required to get a cannonball up to orbital velocity within a cannon would shatter it. So, we can't actually perform this experiment anywhere except in our brains. Thus it is a thought experiment.