A drought is a period of abnormally dry weather, which persists long enough to produce a serious hydrologic imbalance (for example crop damage, water supply shortage, etc.) The severity of the drought depends upon the degree of moisture deficiency, the duration and size of the affected area. There are four different types of droughts; Meteorological, Agricultural, Hydrological, and Socioeconomic. 

Meteorological droughts occur when the measure precipitation becomes from abnormal. Since climates vary, what is a drought in one place might not be a drought in another. This definition isn't true in all places.  Some areas have drought defined as the number of days when precipitation amounts to less than a pre-determined amount. This only applies to places where they receive precipitation all year long.
Agricultural droughts refer to a situation when the amount of moisture in the soil no longer meets the needs of a particular crop. For places where whole towns depend on a certain crop such as wheat, this can be disastrous. If crops are young when an agricultural drought hits, it is almost certain that they will die. If crops are in later stages of maturity, they have a better chance of surviving.
Hydrological droughts occur when water supplies above and below the ground are below normal.  Hydrological droughts affect the hydrologic system by slowing it down. 
Socioeconomic droughts refer to what happens when a water shortage begins to affect people. This may be water rationing and other measures. This is different from other droughts because it focuses more on human life and how water effects humans.  Many things in the economy are affected by water. Some of these are food, water appliances, all the things we take for granted.  Socioeconomic droughts occur when the weather and climate cannot meet the demand for these supplies. 
Droughts impact the economy, the people, and the environment. Human beings cannot survive without water and if they don't have it, bad things happen. Generally, as humans, we are humongous wasters. We waste tons of water every single day. During a drought we have to take some simple water conservation steps such as turning off the sink as we brush our teeth. By doing simple things like that we can save a lot of water and help our communities get through droughts and water shortages.
Meteorologists are learning how to predict drought. They have recently figured out how to find the beginning and end of droughts. Predicting drought depends on the ability to forecast two fundamental meteorological surface parameters, precipitation and temperature. Despite advances it will be sometime before the scientific world can accurately predict when droughts will occur ahead of time.

The first image is of ground that is dry and cracked because of a drought, courtesy of http://www.bbc.co.uk/oxford/weather/images/drought.jpg The second picture is of a dried up stream bed, courtesy of http://www.vdof.org/images/scenic-river-drought.jpg