A munchkin, also known in some gaming circles as a "twink," is someone who exploits the rules or limitations of the game to gain an unfair advantage. It's one step below a powergamer.

A good rule of thumb for what constitutes munchkinism is anything that would realistically impossible or not allowed by a gamemaster under normal circumstances. Repeatedly gating in Pit Fiends for cheap XP is one example, taking advantage of prior knowledge of the game to prepare for an encounter your party could not realistically be prepared for is another.

Not sure about the origins of the term. Someone else will have to answer that for you.