A pool of money collected through unofficial means and intended for unofficial purposes.
The money used to pay the Watergate burglars was reputedly from a slush fund that was formed from cash campaign contributions from the Midwest and ended up as an unaffiliated account in a Florida bank. This slush fund also payed for operatives to politically attack McGovern during the campaign.
A slush fund is not inherently illegal, but since it is often used for illicit activities and not properly declared, there are negative connotations to the term.