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A graphical effect that creates a fuzzy atmosphere of light around sources of light. It can resemble the soft focus technique used in films.
The bloom lighting effect was introduced to the video game industry by the PS2 title, The Bouncer, released in 2000, followed by Ico, released in 2001. The Bouncer used it as a lighting & glowing effect, to create a more cinematic movie-like look, as well as to compensate for the PS2's lack of anti-aliasing. Ico used it to create a more artistic, atmospheric look.
Light Bloom has been shamelessly abused in titles such as Fable or Prince of Persia: The Sands of Time. Light bloom saw a surge in popularity in 2004, which prompted GameSpot to have an award that year for "Most Light Bloom". 
A compilation of over-the-top light bloom effects in video games can be found here.