This is a concept generally attributed to Carl von Clausewitz, although it should be observed that in Von Clausewitz's classic work "On War" the phrase "fog of war" does not appear.
The concept can defined as: "The sum of factors which reduce or impede situational certainty in war."
Basically, the fog of war is the sum of your own ignorance plus the enemy's deceptions. It is what makes most important decisions in war judgement calls.
Even in modern warfare, the fog of war is still strong: as the US Air Force found out in Vietnam, too much information (infoglut) is as bad as too little.
The cases of civilian aircrafts shot down because they had strayed out their routes can be interpreted in the light of the fog of war.

What Clausewitz said:

"imperfect knowledge of the situation . . .can bring military action to a standstill"

"Lastly, the great uncertainty of all data in War is a peculiar difficulty, because all action must, to a certain extent, be planned in a mere twilight, which in addition not unfrequently--like the effect of a fog or moonshine-- gives to things exaggerated dimensions and an unnatural appearance. "

("On War",Ch. II "On the theory of war")

Another interesting (if derivative) source is the US Marine Corps' basic military philosophical manual, "Warfighting".

All actions in war take place in an atmosphere of uncertainty- -the fog of war. Uncertainty prevades battle in the form of unknowns about the enemy, about the environment, and even about the friendly situation. While we try to reduce these unknowns by gathering information, we must realize we cannot eliminate them. The very nature of war makes absolute certainty impossible; all actions in war will be based on incomplete, inaccurate, or even contradictory information.

The Fog of War was also the name of the feature in Warcraft 2 that did not allow you to see all of the map that you have not explored, or currently were not occupying. This was a technique to add uncertainty to what your opponent was doing, and where the enemies were (it probably was conserving memory as well). Most RTS games followed this feature, making it one of the most copied ideas in computer-based strategy since. Warcraft 2, the maturing element of the Real Time Strategy genre, introduced this and a lot more elements into the modern RTS games. It still remains today one of the best balanced, simplest, and down right most fun multiplayer games to date, due to innovative features like that.

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