Passive income (or residual income) is money that you expect to earn on a regular or semi-regular basis that you don't have to do any significant additional work to receive. Some examples include royalties, investment income, rental income, interest income, and residual sales commissions.
Active income, on the other hand, involves trading time for money. You have to keep working to receive it. If you stop working, you stop receiving. This includes hourly and salaried income, one-time commission income, independent contractor payments, and most work bonuses.
An easy way to tell the difference between active and passive income is to ask yourself how much money you'd expect to receive this year if you stopped working. Your active income stops when you stop working. Your passive income continues to flow whether you're working or not.
This is an oversimplification to some degree. Most passive income isn't 100% hands-off. You may have to invest a small amount of time and effort to keep the flow going, such as maintaining your investment accounts, but perfect passivity isn't necessary to enjoy the benefits.
Society conditions most of us to work for active income. We're taught to go out and get jobs to earn a living. But this can become a trap because active income turns off when you stop working. If most or all of your income is active income, it's hard to get ahead financially. It's also difficult to have much of a life outside of work if you have to keep working year after year to bring in enough money to pay the bills -- or risk going broke.