State capitalism is an alternative term for the interpretation of communism as practiced in the old Soviet Union and the pre-reform P.R.C.. In my experience the term is usually used as a pejorative by anarchists, Trostykist communists and others who want to maintain an anti-capitalistic position while distancing themselves from the policies of the 20th century's major communist states.
The implicit criticism in the term is that the policies of those states wasn't really an end of any kind to the basic capitalist system, but simply a change of elites. Rather than abolishing any of the abuses of the capitalist system, the state simply created itself as the sole holder of all capital, and changed a few critical pieces of terminology. Instead of most of the power and control of production being held by a class of industrialists, it was held by the Party nomenklatura. Life for the poor shlub working in the factories or on the farms changed very little, and usually for the worse.
Curiously enough, this same basic argument is raised by libertarians and laissez-faire capitalists, though to argue an opposite point. To them this is proof positive that communism is a foredoomed proposition, and only leads to the government doing the same things the private sector would, only more inefficiently and with a heavier hand. To the anti-capitalist leftists I mentioned earlier, on the other hand, this argument shows that communism (or substitute occasionally "the true freedom of anarchy") has yet to be given a chance, and since it has never been instituted, can't yet be said to have been disproven in the way that the libertarian camp argues.
Worth noting is the fact that when libertarians argue this point, they usually refer to the governments in question simply as communist, while the leftists use the term state capitalist. Thus, each manages to construct what has come to be regarded as one of the two Great Evils of the 20th century (the other, fascism, could also be described as state capitalist in its economic institutions) as the opposite and natural "other" of their own position.