Mark Cuban started a discussion about click fraud today, focusing on what is and isn't clickfraud. Most of his points, and those in the comments, look at the problem from the side of the clicker (who is generally the one perpetrating the fraud).
This is all interesting, but an easier way to define it is taking the viewpoint of the advertiser. If the person who clicked does not have genuine intent to either learn more about, or purchase, the product/service being advertised, then the click is 'fraudulent' (or better-yet 'invalid' as Andy Beal suggest).
Another commenter suggests the CPA deals would elminate the problem, since advertisers would only pay when visitors actually purchase. In other words, turn all of PPC land into affiliate marketing. Not a bad idea, and a little birdy told me that Google is already testing the idea.