Lahar is an Indonesian word for a mudflow of volcanic material - that is, a mass movement of volcanic debris that contains some amount of water. (A dry flow of volcanic material would usually just be called a debris flow or debris avalanche.) The key thing that distinguishes a lahar from a "regular" mudflow is the presence of volcanic material in the flow, which can include tephra, ash, hydrothermal alteration products, blocks of lava flows, and other pyroclastic materials. Some descriptions liken this mixture to a flow of cement, and it's capable of moving house-sized boulders huge distances from their source.
Lahar deposits characteristically show poor sorting (lots of different sizes of material, from boulders to sand), multiple rock types, rounded clasts, and muddy matrix supporting the clasts. (Sometimes in deposit matrices you can find rounded voids where bubbles of air were trapped as the deposit hardened around them!) Lahars are most common on stratovolcanoes, but (as we've seen in Iceland), other types of volcanoes can also create the correct conditions to form a lahar. Lahar formation depends on having lots of loose material, and the addition of lots of water over a short period of time (such as from a melting glacier, a hurricane or storm, or a breached crater lake, among other things). They do not require the volcano to be actively erupting, which is one reason why they are so dangerous.
Here's a video of a lahar from Mount Ruapehu in New Zealand (March 2007):
Lahars are an especially dangerous volcanic hazard because they appear and disappear so quickly. Lahar debris that's deposited in a riverbed can easily be eroded by normal river flow, and lahars that have spread beyond valleys and drainages can easily become reclaimed by vegetation. In fact, one of the most devastating lahars to have come from Mount Rainier in Washington State (the Osceola Mudflow) is now covered with small towns. Because the people in the area are now aware of the danger a repeat lahar would present, they are required to hold evacuation drills. Lahars are somewhat easier to monitor and avoid; acoustic flow monitors (specially calibrated seismometers) can be placed in source zones, and a timely warning can be sent downstream when lahar signals are detected. Sometimes evacuation can be simply a matter of climbing to a higher elevation, although on a floodplain it could be necessary to travel much greater distances to safety, but it does require advance warning.
Armero, Colombia, destroyed by lahar on November 13, 1985. Photo from the USGS CVO website.
Lahar warnings aren't always heeded, however. It's impossible to mention lahars without also mentioning the town of Armero in Columbia. On November 13, 1985, a small eruption of the nearby volcano Nevado del Ruiz melted part of the snow and ice capping the volcano's summit, and produced a lahar. Volcanologists knew that river valleys on the volcano's flanks could channel lahars toward populated areas, and sent warning to towns in the lahar's path; unfortunately, local officials either received incomplete or conflicting information, and/or decided not to listen to the scientists' warnings. As a result, more than 23,000 people were killed in Armero and nearby villagees, when they could have reached safety by climbing only a short distance up the slopes on the sides of their valley. This tragedy drove a USGS scientist to develop the Acoustic Flow Monitors mentioned above, in hopes that more deaths could be avoided; the system is now used at lahar-prone volcanoes worldwide.