A texture with transparency on a floating polygon, so that it appears to be painted directly on the underlying mesh. Decals are commonly used for effects such as bullet marks, graffiti, broken edges, and tire tracks.
When placing decals, care must be taken to avoid Z-Fighting. However if you use a shader with depth offset this completely avoids Z-fighting.
To only influence normals of the underlying surface, use deferred rendering and a shader with per-channel GBuffer mixing. See Decal technique from Star Citizen.
Another common use is for blob shadows, which are soft dark circles under a model. Blob shadows are usually faster to render than using shadow-casting lights, and can replicate the look of soft shadowing.
Fallout 3 – Edges from Simon Schreibt - Investigating decal usage in Fallout 3.