(n) an informant or snitch, especially related to drugs
(v) to inform upon
Short for narcotics informant. In the 1960-70s, drug users were paranoid about hangers-on who would turn them in to the authorities. Narks could be undercover narcotics officers or simply people recruited as informants.
Original usage was specific to those who gave evidence about illegal drugs. Since then, can refer to anyone who informs against others.
Don't smoke around Terry. I think he's a nark.
They told him he could get off without charges if he would nark out the others.