From The TV IV
A clip show is an episode, usually of a sitcom, with a small amount of original content which serves to allow the introduction of segments from previous episodes. It is generally regarded as one of the worst kinds of episodes, a cheap ploy for when the writers are out of ideas. It is usually used when the show needs to save money on one episode to use on another, as clip shows are really cheap since minimal new footage is needed.
A typical clip show might feature a character considering a move to another town. His friends will attempt to talk him out of it, attempting to remind him of all the good times he's had at his current location. The good times appear in the form of flashbacks to previous episodes of the series.
The Dead Like Me episode "Nighthawks" subverted the clip show format by using previously unseen material and using clips to contrast the self-image of characters with their (often comical) reality. It also advanced the plot by allowing the first hints of sympathy for Daisy (previously entirely unlikeable) and to increase George's sense of isolation.
The Stargate SG-1 series is famous for its systematical use of a clip show for the last episode before the season finale, in order to save money for the finale. That behaviour is mostly accepted by fans of the series, since it allows more dramatic special effects in the finale.