A capacitor, usually ceramic, used to provide instantaneous energy to a local circuit.
Due to parasitic elements (inductance, resistance, etc.) a sudden current draw by a component (like an amplifier, or digital logic IC) often cannot be satisfied without disturbing the power rail feeding the bus.
A decoupling capacitor, placed as close as possible to the power and return pins of the circuit in question, provide local energy storage and can provide the instantaneous energy needed without causing a bus disturbance. Decoupling capacitors tend to be ceramic due to their high-frequency performance and low ESR.
The voltage disturbances caused by sudden draw can lead to latch-up and other malfunctions in integrated circuits, and are also a source of electromagnetic interference (EMI).
Decoupling capacitors are also referred to as bypass capacitors.