Bitcoin users have two basic permissions: read; and write.
The Ethereum cryptocurrency project has a similar structure. However, it adds one function that most other cryptocurrencies do not: the write permission of any user is extended such that a user can, if they wish, upload a script onto the blockchain, which is utterly arbitrary data, that will do whatever they want it to do. These scripts are, for lack of a better term, known as “smart contracts.” As Casey says, “they are not particularly smart nor are they contracts.” What they do is allow the person creating the script to specify what data the script is meant to deal with; and which users have read/write permissions in respect of that data.
From Eris Blog 