Usually programs that use scripts such as Glider to move around the world, collecting items and gold. The programs use intelligent behavior patterns to mimic players such as random jumping, joining groups and random phrases. Some programs even have responses incase a <gm> messages them.
Further, these programs can be manipulated with in-game hacks, that are activated after logging into such games that only check for game mismatches when you login and logoff. Thus warp and speed hacks can be used as long as they are turned on after such game checks are passed or not active.
Chinese Gold Farmers is most-likely a stereotypical comment directed at Chinese people since they work for almost nothing. It is thought by the average 12-year old gamer who has their account paid for by their parents or guardian that Chinese often work ridiculous hours at some random job that no one else would do in order to pay for their food, clothes, etc. While this may be true for some family's, a organisation (even if illegally operated) would not waste the time or money to train individuals how to play a game, and provide the accounts to multiple people to play.
Why pay for an account and then pay for someone to work the account?
It should be noted that a gold farmer is someone who is working with a multi-billion dollar industry to further the lives of people who work daily jobs and cannot spend 18 hours a day playing their favourite mmorpg, therefore use the money they make to buy the items or gold they do not have time to gain themselves.
My friend bought 200 gold for $10 and they threw in a Windfury for free.
Blizzard claims that gold farming is illegal, yet it is rumoured that they own 90% of the gold farming websites in order to stop the company from going backrupt.
I bought a Wang Hung, a Chinese Gold Farmer, over the internet for $150 plus airfare from China. I locked him in a cage, gave him a computer and told him that if he doesn't get me 2000 gold by the end of the week, I'd cut his food rations in half. Today gold revenue is up 5000%. I've upgraded Wang Hungs' cell to a full condo and I now live in Hawaii in my 18 million dollar home.