ICO stands for Innitial Coin Offering.
Creating a cryptocurrency can take a lot of time and effort. This, of course, translates into money. Sometimes developers pre-mine some coins and offer them at what they feel would be a better price than the value of the coin will be once it reaches the market. They sell the coin before it is listed on exchanges, on the assumption that once they finish the project the respective coin will have a greater value . Therefore, developers who present an ICO pre-mine a number of cryptocoins in order to cover their costs and complete the project.
Practically, an ICO is a new form of investing. You get shares (in the form of cryptocoins) in a new, nascent project that is cryptocurrency related. In turn, the developers of the ICO raise enough money to bring their project to fruition. They are hoping eventually to raise the value of the initial investors' shares (coins). When it works well, it is called innovation, when it goes bad it is called a scam.
ICOs can be risky endeavors. Technically, the developers sell you coins that do not yet have value on the market, for fiat money or other cryptocurrencies that have value on the market. Yet, they sell those coins at what can be considered a hefty discount if the project is completed and successful.
Ideally, an ICO has a public outline of their schedule and tasks that they set for themselves. The money people invest should be kept in an escrow account that is trustworthy and is released to the developers in slates, every time they reach a new goal.
There are two main factors that will drive the potential of an ICO.
First - how well-prepared is the team to deliver on that promise and how realistic are their goals?
Second - are they promising something really great, useful or innovative?
Keep in mind that a majority of ICOs fail and that some jurisdictions do not regulate innovative spaces like cryptocurrency.