An older man (over 40 years of age) who goes after younger women (18 to 35 years of age) and pursues a relationship with them (can be romantic/sexual or just for non-sexual company) in exchange for money or other material goods. The woman is often in the relationship for a short period of time until she gets what she wants (financial stability or other possessions) and is referred to as a "sugar daughter", "sugar baby" or "gold-digger". Most young women are not interested in this type of relationship and would rather date a man closer to their own age or a man they actually love. Sometimes a younger woman actually does fall in love with a respectable older man so she is not a gold-digger, however this is rare and most young women are attracted to men their own age and don't like being "hit on" by old men. Most people think this type of relationship is wrong or embarrassing (some may refer to a "sugar daddy" as a "cradle snatcher" - a slang term). Opinions on the term "sugar daddy" vary. Old men who are interested in younger women may not be offended by this type of relationship, while younger men may find it weird and most women find it degrading.
Hugh Hefner is an example of a very old "sugar daddy."
"Sugar dady" is the opposite of a "sugar mama" or "cougar" - which refer to an older woman who pursues a relationship with a much younger man.