Machinima is a film that's made with computer-generated 3D graphics. But unlike animation, it's not created frame by frame. Instead, you define how the character moves and responds, define the terrain and then direct lines of movement for your actors and camera. The rendering is done in real-time. It's more akin to film making but in a virtual environment.
The technology is in it's infancy but will be interesting to watch how it progresses. It's right at the intersection of film making and gaming. I suspect children's shows is where you'll see it applied the most. More info and examples at the at Machinima and the Academy of Machinima Arts & Sciences.
Like the phenomena around Flash movies, I suspect one day you'll find lots of cult grassroots Machinima floating around the Internet.