A slot machine that deals in (and optionally accepts and pays in coin form) pennies. There are essentially two styles of penny slot; one of them is a real, physical three-reel slot machine that accepts and pays out physical pennies. The other is almost exactly like the modern day video nickel slot machine, except that its credit denomination is $0.01 instead of $0.05.
At first glance, these machines would seem to be a cheapskate's dream -- a low-cost and thus low-risk chance to win a big jackpot (figuratively speaking). Unfortunately, like almost every other form of gambling, these machines aren't quite what they seem.
Both types of penny slot share one very bad feature -- they have horrible payouts. Nickel slots are lousy (90-94% usually), but these are absolutely terrible (below 90%). Sure, we're talking pennies here, but for every 100 you put in, you shouldn't expect to ever see ten of them again.
You might be thinking that 100 credits isn't that bad in the penny slot world -- it's just a dollar, after all. This is true, if you're playing an older machine with physical reels and a single payline, because you're only playing between one and five credits (cents) per spin. Once you sit down to a newer video slot machine that either deals in pennies exclusively or is a multi-denomination machine that counts pennies amongst its denominations, you're getting ready to lose money pretty fast.
Video nickel slots make casinos rich for two reasons: first, their payback percentages hover in the low 90's, and second, they allow you to bet a rediculous number of credits per spin. They do this in by providing up to eighteen paylines (various combinations of positions on five reels shown on a screen), and by permitting bets of up to five credits per payline. A maximum bet on such a machine can end up costing $4.50 per spin, and that's a lot higher than any dollar slot you'll find in any casino.
Video penny slots go a step further, and syphon your money away in even larger chunks by bumping the maximum bet per payline to 10 credits each. Each spin may "only" cost you 180 credits ($1.80), but with a payback percentage lower than even a nickel slot, you'll burn through your money fast. The difference is, even if you bother using a player's club card in the machine, you're asking the casino to rate you playing pennies.
Some machines even (almost jokingly) offer a progressive jackpot of thousands of credits. Remember, the odds of hitting one of these are insanely low, and even if you do, you're still only getting a few thousand pennies.
No video penny slot I've ever seen will actually physically accept pennies for wagering, nor will they pay any out. Instead, they take paper currency only, and spit out little tickets you're supposed to take to a cashier. You don't even get a hand payout if you hit a jackpot; just a little ticket. The cashier is likely to be annoyed with you if you honestly expect her to pay you the eight cents (in exact change) the machine owed you when you got sick of playing.
It might initially seem neat to feed a machine a $20 bill and receive two thousand credits, but when a penny slot can swallow that much cash in just twelve spins (you'll have a little bit left over after spin #11), you'll feel like a sucker having wasted the money on one.