It's a general term for numerous different types.
The basic concept is for hedging one's bets. While it's a very simple concept from the simplest point of view, the whole field is quite a large and complex subject.
Very simple example:
Say I'm an investor, long in oil futures, so I'll make profit if the price of oil goes up, say, at a point 6 months in the future. But I'll lose money if it goes down.
You own an airline, and if the price of oil goes up in 6 months, you'll be paying more for your jet fuel and that will cost you quite a bit of money. On the other hand, if the price of oil stays low, so will your fuel costs.
We can both take the opposite side of the future price of oil bet - and we'll both be happy whether the price goes up or down, because for both of us, if the price moves in the wrong direction for us and we lose money because of that, our bet will pay off, offsetting our loss. If the price moves in the right direction, we'll be able to afford to pay off on the bet.
Of course there are are many forms of this type of contract, and many that are useful are ones.
The main hazard with them is counterparty risk. If during that 6 months, in our example above - if the one who has to pay off on the "bet" goes bankrupt or has severe financial difficulties - then the payment might not be able to be made. Yuck, I was counting on that payoff.
Now, what if I had other contracts with other people. And due to me not getting paid - what if I can't pay other people under other contracts ? Big yuck.
Here's an overview article,
Derivative (finance)
The article has an overview of criticisms. As always, the devil is in the details, and we find that those that take advantage of their own size and influence, i.e., the usual suspects, i.e., financial elites, wind up passing off risk while grabbing up profits, and at the same time using the concept of "systemic risk" (which was actually introduced by them and passed off, even to the taxpayer), to push for bailouts when they desire them, push against regulation they don't want, and push for legislation or regulation that in the final analysis benefits them more than anything else.