Today, when you make an account on Facebook or Amazon or Google, you're required to input information like email, birthday, financial info, etc. This information is then copied and stored on that companies servers or rented server space from a third party. This is the definition of "centralized", or storing all the information in a central location.
Decentralized applications or DApps, are maintained in the blockchain on thousands of nodes scattered across the globe. They connect buyers and sellers on a peer-to-peer network. Instead of storing all of your personal login information on central servers that normal apps use, you can simply use your private key or digital identity to login to a DApp maintained on the globally connected, decentralized network.
The Ethereum white paper splits DApps into three distinct categories:
- Applications that manage money
- Applications that involve money and other pieces
- Applications in the "other" category that use the blockchain to govern and vote
The first type allows users to manage funds and exchange ether (ETH) as a way to fulfill a smart contract with another user. This is done by using the blockchain as a facilitator of the data.
The second type uses outside information to allocate funds. As a prime example, lets use sports gambling. Two users can use a DApp to agree to terms via smart contract. The outside information is relayed by "oracles" who input real-time data on the blockchain. This data is then used to execute the smart contract, and finally the funds distributed to the winning party.
The third type allows users to create Decentralized Autonomous Organizations (DAO). Users form leaderless companies that must come to a consensus about voting rules, governance and funding.