An abbreviation of application program interface, an API is a set of routines, protocols, and tools for building software applications. A good API makes it easier to develop a program by providing all the building blocks, like the proper collection of Legos to build a house or vehicle. A software company releases its API to the public so that other software developers can design products that are powered by its service.
An API resembles Software as a Service (SaaS), since software developers don't have to start from scratch every time they write a program. Instead of building one core application that tries to do everything — e-mail, billing, tracking, etc. — the same application can contract out certain responsibilities to remote software that does it better.
Web conferencing for example, is considered SaaS since it can be accessed on-demand using nothing but a Web site. With a conferencing API, that same on-demand service can be integrated into another Web-based software application, like an instant messaging program or a Web calendar. The user can schedule a Web conference in his Web calendar program and then click a link within the same program to launch the conference. The calendar program doesn't host or run the conference itself. It uses a conferencing API to communicate behind the scenes with the remote Web conferencing service and seamlessly delivers that functionality to the user. The API more or less, helps to bridge that gap between the applications.
– What is a Platform?