AI means Artificial Intelligence - that is, the ability for a computer to "think". From the very first computer games, programmers have tried to simulate AI, but none come close to the intelligence that is displayed by people, although some simulations (eg. rats) have been acheived reasonably well.

A more common goal is to have a system that merely appears to be intelligent - but nevertheless follows a strict set of rules which enable it to show characteristics of thoughts. For example, the main AI development area seems to be computer games. In a racing game, the AI need only be very simple - if its too far left, slow and turn too far right, slow and turn, otherwise speed up. Obviously, the next step up would be to take into account the next turning, in order to slow down prior to reaching it.

Unfortunately, it is often the case that the system demands much more "intelligent" AI, eg. in a First Person Shooter (FPS), the AI needs to turn, see, hear, run away, gang up etc. (or at least appear to be doing these things).

The other sort of AI ("proper" AI) involves the computer working something out based on what has happened, the most common being in an "expert system", which has a database of problems, solutions, and what works when. If the problem is not listed, it can try and find a close match and recommend that, then, based on what happened, will add this problem and it's solution to the database.