Artifact is a term that describes a degraded picture (digital image) where small areas of the picture have obvious localised islands of distortion or blocky spots of off-colour pixels. A similar phenomenon occurs as a halo around some objects in the picture where there are sharp edges.
Artifacts normally appear when the picture has been over-compressed during a lossy compression process to make the image smaller. Normally the creation of artefacts is associated with *.jpg format pictures. However, similar artifacts can occur in any image format that involves compression or data loss.
The appearance of artefacts is also often associated with over sharpening or other heavy manipulations of an image.