Steam is platform for the digital distribution of video games on PC. It has clients for Microsoft Windows, OS X, Linux, and its very own SteamOS. By using this client, players can purchase games and play them on any computer where they have a client installed. Instead of games being bound to their hardware, they are instead bound to their Steam account, allowing for them to play their games indefinitely, even if they upgrade or purchase a brand new computer (provided they can always prove ownership of their account, of course).
Steam was released in 2003 by the Valve Corporation (the name behind games like Half-Life, Dota 2, Portal). Over time, Steam grew to be the biggest service for PC gaming, with over half of all sales coming through its platform. It isn’t without its competition, though; some developers use their very own distribution such as Blizzard, Electronic Arts, and Ubisoft, but many of their games allow for Steam activation and integration so fans can easily maintain their libraries.
Although it wasn’t immediately well received thanks to DRM (Digital Rights Management), tweaking, updates, and some truly amazing sales helped to put the service in a more favorable light.
So, when you hear someone asking you if you have Steam, don’t start checking your hot water. They want to know if you use the Steam platform for gaming, and may want to be your friend.