A sort of record (yes, like vinyl!) that has an image on it, or, rather, in it - sandwiched between two pieces of plastic (not vinyl). This creates the biggest problem of the picture disc - the clear plastic that allows the picture to be seen wears out far more quickly than normal vinyl.
Picture discs are mostly 12" records, as 7 inchers just don't have the space for a decent sized picture, and also have the hole in the center, which disrupts the image. Many picture discs are sold in clear sleeves, so that they can be displayed. Most are purchased by collectors - they cost more and sound worse - who else would buy them?
With the advent of the compact disc, which can be printed on, picture discs have fallen by the wayside. One still sees them occasionally, but they tend to be overpriced - why not just put that cool picture on the jacket?