A British slang
term, widely used and understood, meaning to inform
on another. Its most common usage would be in criminal
circles where it can be as either a verb
"Somebody grassed on Jimmy 'Lightfingers' Malone for the bank job he did last week"
Or it can also be used as a noun, meaning the one who informs:
"If anyone sees Big Dave let him know that we don't like grasses round here and he's in trouble if he shows his face"
Its use isn't entirely confined to miscreants however, as telling tales to a teacher at school could get you labelled as a grass as well. Thinking about it, I imagine a close analogy in US English would be the word "snitch" which I believe can also be used as either a noun or a verb.
The word "grass" really became accepted into the mainstream in the early 1980s when a number of arrested IRA members became labelled supergrasses by the media after giving evidence against their former comrades in exchange for a prosecution amnesty and being given new identities.