Parallax mapping also called as virtual displacement mapping is an advance form of the bump or normal mapping techniques.
It is generally used to apply textures in 3D rendering applications and video games. To the end user, this means that textures such as stone walls will have more apparent depth and thus greater realism with less of an influence on the performance of the simulation/game.
Parallax mapping is implemented by displacing the texture coordinates at a point on the rendered polygon by a function of the view angle in tangent space (the angle relative to the surface normal) and the value of the height map at that point. At steeper view-angles, the texture coordinates are displaced more, giving the illusion of depth due to parallax effects as the view changes.
Steep parallax mapping is one name for the class of algorithms that trace rays against height fields. The idea is to walk along a ray that has entered the height field's volume, finding the intersection point of the ray with the height field. This closest intersection is what part of the height field is truly visible. Relief mapping and parallax occlusion mapping are other common names for these techniques.
Source: Wikipedia, www.graphics.cs.williams.edu
