The term can be used as a noun or a verb. (Because it's made up! Awesome!)
Cosplay is generally reserved for comic conventions, such as Comic Con, or an event where the character is relevant. Cosplay usually focuses on characters from anime, video games, and comic books. Science fiction and film characters are also frequently chosen. Think of Cosplay like Halloween, for adults, in a niche category, and without candy. (Or booze.)
Here's part of a definition lifted from Urban Dictionary. It's informative and contains more positivty than my cobbled together definition:
Cosplay is a popular hobby of teen-aged girls in Japan, and is also prominent amongst anime fans worldwide. Sometimes, cosplays can be very good; with a well-crafted, well-fitting costume that looks like its original reference. Such cosplays often require hours of hard work, and considerable seing talent.Or, informatively lifted from Wikipedia:
Cosplay (コスプレ, kosupure ), short for "costume play", is a type of performance art in which participants don costumes and accessories to represent a specific character or idea. Characters are often drawn from popular fiction in Japan. Favorite sources include manga, anime, tokusatsu, comic books, graphic novels, video games, hentai and fantasy movies. Role play includes portrayals of J-pop and J-rock stars, Taiwanese puppet characters, science fiction characters, characters from musical stories, classic novels, and entertainment software. Any entity from the real or virtual world that lends itself to dramatic interpretation may be taken up as a subject. Inanimate objects are given anthropomorphic forms and it is not unusual to see genders switched, with women playing male roles and vice versa.Performance art! See how nice that is! Of course, when I thought I'd have to dress up for Halloween, I was going to draw a red dashed line on a white shirt and call myself spell check, so my snark is far from appropriate.
Cosplay, Urban Dictionary
Culture Lesson: LARP