Spoofing is a market manipulation technique where somebody try to trigger other orders in the market. Limit orders are sent to the market and then canceled quickly and possibly making an impact in the market.
In a general sense spoofing is to try to give a false impression. For example somebody trying to pretend they are something they are not in order to gain confidence and then take advantage of that false confidense.
Spoofing in the financial markets is done mostly through algorithms.
In practice spoofing can be done by posting a relatively large amount of buy limit orders. This could create an impression that there are a large amount of buyers in the order book. This could drive the price up by a small amount momentarily. The large amount of limit orders are canceled before the order is filled. If the price has been driven up by this spoofing the manipulator can sell at a small but higher price.
In the U.K., the Financial Conduct Authority and the courts are authorised to fine spoofers. According to the FCA, "Abusive strategies that act to the detriment of consumers or market integrity will not be tolerated."
Spoofing was made illegal in the U.S. by the Dodd-Frank Act of 2010 under Section 747, in which the practice is defined as "bidding or offering with the intent to cancel the bid or offer before execution."