Stock photography is simply photos taken "on spec". This means the photographer takes pictures of various objects, people, or situations, and sells them after the pictures have been taken. They are not on a specific photography assignment, instead they are taking photos of subjects they'd like to take pictures of.
This type of photography is primarily used in printed advertisements, brochures, magazines, and websites, though there are many other ways it can be used.
Stock photos are licensed in several different ways. The two most popular are Rights Managed and Royalty Free Stock.
Rights Managed photography is the use of stock photos that are licensed for a specific, limited time and purpose. If an advertiser for instance, needed a stock photo for one specific ad campaign, they could license a photo for that specific use. And they'd be limited to using the photo only for that campaign. They'd also be charged based on the size of the ad campaign they intended to use the stock photo for.
If they wanted to use the same picture again, they'd have to pay another fee. And that fee might be different, if the campaign use and sizes are different. These recurring fees are called royalties, and with rights managed stock photography they can be quite hefty. Ranging from hundreds to thousands of dollars for the limited use of one photograph.
Royalty free stock allows you to pay a license fee once, then use the photo multiple times. There are usually limitations on this form of stock photography, however the restrictions are not nearly as narrow as rights managed photography is. A designer or advertiser could license one photo for instance, and use it in hundreds of different ad campaigns, without incurring additional fees. In other words: No royalty fees need to be paid.
Generally royalty free stock photography can be licensed for as little as $50 up to several hundred dollars depending on the licensing source and rights given.
One of the most popular forms of stock photography for small and web based businesses, is royalty free micro stock photography. This is a variation on the royalty free model, but it's referred to as "micro stock" because designers and advertisers pay just a dollar or two per image license.
This type of stock photography has become quite popular with website owners particularly, because it's a very inexpensive way to get top quality photos for use on their websites. Quality stock photos can be licensed for as little as $1 in smaller, web friendly sizes. And prices go up to about $3 or $5 for larger, print quality photo sizes.
Since these photos are royalty free, designers can use them multiple times for that one time low cost. Be sure to check the licensing restrictions though. Royalty free does not automatically mean "public domain" or "copyright free", and each micro stock photography site has their own particular use restrictions on the photos you license.