DEFense CONdition of the US Government concerning nuclear and other types of attack. Generally considered a cold-war term.
In computer security, an annual gathering in Las Vegas where hackers and crackers discuss the latest developments in copy protection, security, cryptography and other important technical issues. Also, hacking games are played, competitions held, and so on.
The party has become so renowned that many spooks also attend, often dressed "undercover" in the style of the eccentric hackers that frequent the event. It has now become somewhat of a running joke, and federal agents who are "spotted" win a free tee-shirt bearing the slogan "I am a fed and was spotted at Defcon", or similar.
A shadow conference - The Black Hat Briefings - is now held a few days before Defcon, and is considered to be a more useful event for serious security professionals to attend.