It's a huge fic exchange for rare fandoms. There's a community on Dreamwidth called Yuletide, and Yuletide-admin on LJ explains how the rules and nominations for rare fandoms work.

Basically, you can nominate a fandom that has a very small number of fics on FF.net or AO3, and then people sign up and make claims, and it's a big secret santa type deal. They do it once a year, and it consumes most people's flists for months.

The OTW is the Organization of Transformative Works, which is a bunch of professional people trying to give fanfiction a good name and treat it artistically. They founded Archive Of Our Own, or AO3, as a way to do so, but it is primarily an archive for Yuletide fics.

For more information, check out yuletidetreasure.org. :)