An ethical religion is a religion that depends on the ethical appeal of a great teacher rather than on a belief in supernatural beings. Examples of ethical religions include Buddhism, Confucianism, and Taoism.
It is important to note that in identifying an ethical religion as a religion, one must throw out the Western definition of a religion, which is usually strongly intertwined with Christianity and the belief in a deity. A better definition, perhaps, is used by sociologist Emile Durkheim, who characterizes religion as being a set of symbols that invoke feelings of reverence and awe, which are linked to rituals practiced by a community of believers.
Ethical religions acknowledge no gods, at least not in the sense of a Christian God or Allah. Rather, ethical religions focus on ethical ideals that relate the believer to the natural cohesion and unity of the universe. In other words, ethical religions revolve around ideas, where theistic religions revolve around a deity or set of deities.
To understand what an ethical religion is, it's easiest to look at the three well-established ethical religions in the world: Buddhism, Confucianism, and Taoism. Each of these paints a different picture, but together they provide a solid description of what ethical religion is through example.
Buddhism derives from the teachings of Siddartha Gautama, otherwise known as the Buddha. Buddhism revolves around an idea of reincarnation and the belief that one can escape the cycle of reincarnation by renouncing desire. In other words, the path to salvation lies not in belief in a deity, but in a life of self-discipline and meditation.
Confucianism derives from the teachings of Confucius, or Kung Futzu. Confucius was a teacher renowned to be extremely wise, and over time his writings and teachings came to be venerated in China. Confucianism, rather than believing in a deity, seeks to adjust human life to the inner harmony of nature and emphasizes the veneration of nature and of ancestors. Essentially, it revolves around veneration of those who have come before and the world around us.
Taoism follows the teachings of Lao-Tzu, who taught that meditation and nonviolence were means to a higher life. Again respected as a wise man but not as a prophet, Taoism revolves around meditation and respect of others and the world as the means to spiritual gain, not belief in a deity. It should be noted, though, that some sects of Taoism do have belief in a deity; Taoism can mean different things to different people.
The clear common thread here is the belief in ideas as the central theme, rather than belief in a deity of some sort. This distinction sets ethical religions apart from theistic religions, which revolve around the belief in a deity.