IOTA is an open source cryptocurrency founded in 2015 by Anders Sønstebø and Serguei Popov. It has been classified as an altcoin (and even mothercoin by some industry analysts) due to its technical design and core mechanisms. It runs on a system called "The Tangle", a form of directed acyclic graph (DAG) applied to a distributed ledger protocol.
IOTA allows for free transactions on a decentralized network without the need for miners, blocks and chains. IOTA therefore significantly diverges from bitcoin and other blockchain based cryptocurrencies. More technical details are laid out in the founders' whitepaper.
The name itself is a literary synecdoche based on the term "internet of things". It applies to an envisioned future where small "things" communicate with each other, with the transfer of monetary value and information in a seamless manner.