In-Character (IC) refers to conversation, actions, and events within the game that are spoken or undertaken by the character (as opposed to the player). More specifically, such communication or events are related only to information possessed by, and actions available to, the character.

Examples:

In-character

"Good morrow, Lady. Would you happen to know where the nearest inn is located?"

Out-of-character

"Hey, my hit points are tanked. Where's the inn at?"

IC matters most in gameworlds that favor roleplay over powergaming.