In the beginning, developers and players were the same, hacking away on academic networks for the entertainment of their peers. The advent of affordable computer systems, and eventually consoles, gave rise to a new hierarchy: Now, there were developers and there were players. The developers developed the games, and the players played them. For a time, when the concept of video gaming was new, this was enough for the players, and they were - for the most part - content with what the developers created.
Naturally, this state of affairs didn't last long. The first reaction to art of any sort, and I'll take the liberty of including games in that, is to think of ways that it could be better. This drive originally manifested itself in copycat games, when most developers and players were the same, but as time progressed the outlet became actual improvements on existing games. This shift has ushered in a new era, one where the players take on the roles of developers after release.
By Gamers, for Gamers
What is player created content? Just as it says, it's anything created for a game by its players. Early player content was limited to data file hacks, and was often used to tweak gameplay. Because development teams were small and a tools market had yet to develop, individual titles tended to use unique, proprietary data storage systems instead of the more standardized formats of today. These proprietary systems increased the difficulty of user content edits, and limited changes to only the most skilled.
The climate is completely different today. Standardized engines, widely available graphic and modeling tools, and global connectivity have made the deconstruction of game code orders of magnitude easier. Those same factors, along with an editor-friendly developer outlook, have made the creation of new content easier still. Nowadays, it's rare to find an RTS or FPS that doesn't include some type of graphical map editor, and more genres are integrating player content creation into their designs every day.
Products of Your Imagination
Before map editing became accessible, the easiest type of content for a player to create was graphical replacements. These replacements have historically been a first step for budding editors. Because most developers use standard image file formats, changing game textures is easy to perform with common tools. With the widespread availability of 3D modeling tools, as well as an increasing focus on their use in art and engineering degrees, graphical replacements are becoming more complex and include the modification or creation of 3D objects. Whether updating the graphics of an older title to newer standards or replacing the "skin" of a 3D model, image replacements are popular for their dramatic effects.
With the advent of developer-created editing tools, the most common type of content players create today is that of maps or levels within an existing game. Editors have grown sophisticated enough that, with a minimal amount of time and effort, the average player can have a basic map created and working in a single evening. With more effort - and some creativity - near-professional work can be produced without needing any formal training or programming experience. At the most complex level, dedicated individuals can create content as good as, or better than, the content originally delivered with the game.
For players with programming skills, an alternative outlet is often "mods," or player-created content that adds new functionality to a game. While graphical replacements and map creation are limited to the content already within the game, mods can be used to create entirely new gameplay. Designing a map that includes a burning building is creating content within the existing game, while adding a functional fire extinguisher is a different beast altogether.