1. (original meaning) Adding information to the back story of a fictional character or world, without invalidating that which had gone before.
2. (more common usage) Adding or altering information regarding the back story of a fictional character or world, regardless of whether the change contradicts what was said before.
2. Retconning Dawn Summers into "Buffy the Vampire Slayer" in the fifth season was one of the rare instances where the fact that history has been altered for our characters was recognized in the story, even though the characters all still remembered the "new" versions of events.
Like deciding in Spider-Man 3 that Sandman actually killed Peter Parker's Uncle back in Spider-Man 1.