From Wikipedia :
Dōjin games 同人ゲーム, are video games created by Japanese hobbyists or hobbyist groups (referred to as circles), more for fun than for profit; essentially, the Japanese equivalent of fangames. Most of them are based on pre-existing material, but some are entirely original creations. They are almost always exclusive to the PC, but a few notable exceptions also exist for the Dreamcast, because of its very weak copy protection.
Dōjin soft are typically available in "demo" or "trial" (体験版) form for free on the internet, with full versions available for purchase. It should be noted, however, that these games are often of a high enough caliber to rival commercially made products: one such game, French-Bread's brawler Ragnarok Battle Offline, a homage/spoof of the MMORPG Ragnarok Online so impressed Gravity Corp. (the original game's designers) that it has been given an official release outside of Japan.
Like fangames, dōjin soft frequently use characters from existing games, anime, or manga. These unauthorized uses of characters are generally ignored and accepted by the copyright holders, and are seen as encouraging a greater fan community. This is quite different from the West where high-profile fangames are regularly shut down by cease-and-desist orders. There are also many dōjin soft titles which are completely original, or feature only vague allusions to other series.