Advergame is "advertise" + "game". It´s a kind of strategy for marketing communication that uses games, mainly electronic, to advertise brands and products. That includes a large range that goes from games that are developed specifically for advertising purposes, to common games that have ads in its interface.
The internet and the video game consoles are great environments to use this strategy. Mobile media (cellphones, iPads, iPhones) are already being tested by companies that chose this marketing strategy too.
When we are talking about advergames it´s important to highlight two main concepts: in-game advertising and product placement.
IN-GAME ADVERTISING: it's just a replica of the real world ad brought into the virtual world, using banners, posters, radio spots and billboards. SSX3, the snowboarding game from Electronic Arts, shows Honda and Seven-Up billboards.
PRODUCT-PLACEMENT: it's about putting the product into the game context. The characters in the game Devil May Cry wear Diesel pants. In Tom Clancy's Splinter Cell - Pandora Tomorrow" the character uses a Sony Ericsson p900 smartphone to solve missions, the player literally lives the virtual experience of using the device. In Worms 3D, from SEGA, the characters drink Red Bull in order to jump higher.
So, game could be publicity/promotion. Could be a brand experience. Could be an advertising space for companies. Now on to your opinion!