I am new to WordPress and I've seen this term passed around.
...and WordPress does the rest for you.
You'll find a lot of plugins for WordPress (such as Contact Form 7 and others) use this convention.
Not long ago i posted a nice explanation: Shotcodes because its shorter! It covers in short:
- What shortcodes are.
- How to use shortcodes.
- How to define your own.
- How to use them in widgets.
Worth a look.
These are WordPress.com specific shortcodes, but they give you an idea of the power of using them.