Ad-hoc mode, also called peer mode, allows clients to connect directly without going through an access point. This can be useful for small, temporary, quick-and-dirty nets, such as a few people sitting around a conference table. It's not very efficient, so I'd never recommend this approach for permanent networks. Also, ad-hoc mode can be a security threat, so make sure it's turned off unless you really want to use it.
This was first published in January 2007