A hedge fund is, in the simplest terms, like a mutual fund in many ways except that it does not have the asset class restrictions that a mutual fund does. The other major distinctions are that only wealthy people/sophisticated investors are permitted to invest in them and that there are fewer disclosure requirements.
And how is this gambling? One of the biggest users of hedge funds is pensions funds as hedge funds are often the most effective way to diversify a stock portfolio due to their low correlations with traditional assets.