An activity is a general name for several groups of features in Moodle. Usually an activity is something that a student will do that interacts with other students and or the teacher.
The teacher can add an activity, when editing is turned on by using the "Add an activity" in a course (see Getting started for teachers or Adding resources and activitiesfor more help). There are other ways to add an activity.
In Moodle 2.0 there are 12 different types of activies in the standard moodle that can be found on the "add an activity" pull down menu.
However there are also Blogs and other standard modules features that involve interaction. Plus a site may add other activities which have been developed as contributed code and found in Moodle.org's Modules and Plugins database for adding to a site.
Activities block - lists all the activities in a course
Activity By 'ID Number'- a standard advance setting used in activities
Activity modules administration - for administrators