A Hammer-On is when you play a note, and while it's still ringing, you fret (like a "hammer") a note that's higher on the same string without picking it.

Hammer-ons are used to play legato, that is, in a smooth manner, and are also used to help the guitarist to play faster. They are most commonly used in electric guitar work, but can be used in acoustic tunes as embellishments.

Strike an open E on the first string. While the note is still ringing, quickly and firmly press a finger on the third fret. If done properly, a G note should be sounding. This is called "hammering on" the string. Without electric amplification, the hammer-on tends to make the sound quieter — a lot quieter if one hasn't practiced it! This is why hammer-ons are uncommon, but not unheard of, in acoustic playing. The hammer-on can just as easily be played with fretted notes: just play the note normally and hammer onto another (higher-numbered) fret on the same string. (Courtesy of Wikibooks)