"Rangefinder" is commonly used as a short form of "rangefinder camera". Back in the early 1900s you would most likely focus a lens using "zone focusing", which is pretty much a fancy way of saying "guessing the distance to the subject" combined with some understanding of how depth-of-field works in relation to the lens aperture.
There were also external rangefinders [1], devices that measures distance using techniques such as parallax. From a practical standpoint, you get two overlapping images and you adjust the rangefinder until the subject becomes clear [2]. You can then read the distance to the subject from the external rangefinder and transfer it onto your lens and take the shot.
Since this is not particularly, well, fast or convenient someone came up with the idea of combining the two and the rangefinder camera was born. Up until the days of auto-focus, single-lens reflex (SLRs) also used this kind of technique for focusing. However, SLRs and point-and-shoots with auto-focus and zoom lenses now dominate the digital market and most people never see or touch a rangefinder. They are still somewhat popular among street photographers though since they are significantly smaller and also since they are arguably more discreet in appearance.
[1]: http://leicaphotography.org/leica/camera/if/fokos.jpg
[2]: http://reviewed-production.s3.amazonaws.com/attachment/2350f...
Everything else is perfect, but this is incorrect. SLRs use focusing screens with split prisms and/or microprisms, not rangefinders. http://en.wikipedia.org/wiki/Focusing_screen
You can still mount one of those on some modern DSLRs by simply replacing a piece of glass. http://www.focusingscreen.com/privacy.php
I use a Leica M6 for many of these reasons, it's a beautiful rangefinder camera. http://en.wikipedia.org/wiki/Leica_M6