What does Smurfing mean when applied to online games?
Since this was probably started by me allow me to explain.
In the context of Starcraft (and it is different in other games), smurfing referred to utilizing an account with a lower ranking (usually ICCUP) than is accurate for you as a player, to beat up on lesser players.
Since Starcraft 2 has a built in ELO style system, this would mean buying a new account (or destroying your own ranking) and losing all your matches to be placed in a league below your skill level (or using one that is already in such a position).
Since ELO style ranking systems require a sample size of multiple games to make accurate prediction of the skill level, players can trick the system into believing they possess a lower skill level.
Smurfing is not unique to ELO style rankings either. Many tournaments are held for lower skilled players and by misrepresening themselves, highly skilled players can enter these tournaments. This often times constitutes fraud or cheating, but may be by design. For example, the Team Liquid Attack pits a professional player against a series of lesser players. Often times they will intentionally mix in another professional player and present him as a lesser player for comedic value. This is by design (and fun to watch).
Usually, however, smurfing is tantamount to taking candy from a baby.
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Smurfing is the act of using high level characters and/or gear to kill or otherwise grief new players and characters.
EDIT: It appears tzenes's comment here triggered this question: http://gaming.stackexchange.com/questions/5641/how-do-diamond-1v1-players-end-up-in-silver-2v2
In this case he probably intends it as someone of very much higher skill crushing a new player mercilessly, which is vaguely similar.
EDIT 2: This answer is wrong. tzenes has the correct answer (as usual).
Here is a short Wikipedia entry about it. And the even more fun (but NSFW) Urban Dictionary definition. It appears it's generally a term for griefing or masking ones "appearance" to remain anonymous. Perhaps synonymous with "hustling".
From my understanding (from various games such as Warcraft III and Diablo 2), Smurfing refers to a player creating a new account or character and using that for various reasons, instead of just using their mainstream account.
Reason could be to take a break from high-level game play (pub-stomp), or if a gamer is popular, use a separate account (smurf) to avoid private messages from fans. Another common reason is if you just feel like avoiding your e-friends (if you are in a bad mood/unfriendly mood for instance).
A specific example is in Wc3, If someone wants to try a new strategy, they will create a smurf account, test it in games until they get it down, then use it on their main account without the losses being on their record (from the testing). This isn't always an accepted method and is most times frowned upon.
The term smurfing certainly predates Starcraft 1. I think it was invented by a guy named Shlonglor during the Kali days of Warcraft 2, sometime in 1996.
Shlonglor was well-known as a world-class player, but he'd occasionally go incognito with other high level players and beat up on average players.
On at least one occasion (maybe the first) they'd use smurf names (PapaSmurf, etc) and I think that's where the term came from.
Here's a link to web page (circa 1996) dicussing it: