The term "Worldbuilding" dates at least back to the 1970s and refers to the work involved in creating a fictional world. When referring to prose ficiton, worldbuilding is all about giving fictional characters an interesting (to the reader, anyway) place to live.
(Remember, the world has to be interesting to the reader, not necessarily to the story's characters. The purpose of writing fiction is to make readers, not characters, experience specific thoughts and feelings.)
Stories that are set in the real world require just as much worldbuilding as stories set in galaxies far, far away. The difference is, readers can generally be assumed to have a basic knowledge of the real world.
That's not always true, though. At OTP we get a fair number of submissions from countries where life is rather different than it is in the US, or even the US and the UK and its related countries. For issue #19 we received, liked, but ultimately had to reject a story that couldn't be fully appreciated unless you knew a lot more about Serbian history than we do, and that we suspect our readers have.
A couple of times we've published stories by African authors, and we've had to ask them to be a little more explicit about what certain objects are, or whether it's going with custom or against custom for a character to do some act that, in the story, annoys neighbors. I'm sure some African readers probably wondered why the author bothered explaining something "everybody knows," but the point is, OTP is a global magazine and there's very little in this world that "everybody knows." (For one thing, all of our stories are written in English and only about 1/8 of the world's population can speak English. Reading it is a different question, and even harder to answer.)
Even stories set in today's America and aimed at educated audiences in today's America require worldbuilding. Here's a good example from "The Zen Thing" by Emma Duffy, recently published in One Story magazine. Watch this combination of family history, characterization, mood setting, and scene setting. Anita is the story's main character and the setting is a family get-together.
[Frank] and Anita's grandmother are eighty years old. They met five years ago at Fresh Seafood, where Anita's grandmother worked as a cashier. They were both living in mobile homes at the time, but Frank's was a double-wide, and so they decided to move in there. Everyone is glad for it, especially Frank, who seems to have no family to his name whatsoever and will now, he knows, have his ass wiped by Anita's parents when the time comes. He has already asked Anita's mother, who is a nurse, to be his medical power of attorney. Everyone is pretty sure Frank is gay, and possibly black, though Anita's grandmother, having never had any experience with either, is unaware of this.
That's 100% worldbuilding. You can't understand this story until you understand the family and the world they're living in. In this case their world is one of unrealistic hopes, long-smoldering grudges, and nasty intrusions from the uglier parts of reality the characters intend to ignore for as long as possible.
Worldbuilding is much more difficult, though, when a story is not set in a world that shares most of its features with the one the audience lives in. When I was active on critters.org, I read a lot of unpublished (and unpublishable) SF/fantasy novels, or at least their opening chapters. I've seen authors desperately try to stuff six books' worth of notes about their world's history into the reader without once asking the question, "What must the reader know to fully understand my story?" The answer to that question is, "Much, much less than what you need to know to write your story."
In other words, we can read and enjoy The Hobbit without having to read The Silmarillion. (Good thing, too, if you ask me!) That's because the best writers figure out how to imply or suggest what readers need to grasp about a world without having to write "information dumps"--those heavy, leaden walls of text that previously speedy and nimble stories crash into and die from.
As an example, in the excerpt above, readers could not be expected to guess that Anita's grandmother has had no experience with gays or black people, so the story told them. Readers also couldn't be expected to guess that Frank may well be both gay and black, so the story told them. But now that you know these two things, and that Anita's grandmother and Frank have been living together for five years, what can you guess? See, that's the art of worldbuilding--giving the readers just enough pieces of the puzzle for them to assemble the rest. The finished picture in the reader's mind doesn't have to be exactly the same as the one in the writer's mind, just close enough to provide a useful framework for the rest of the story.
Next week I'll give you a preview of a story we're publishing in Issue #19. That story does one of the best jobs of SF worldbuilding I've ever seen from an author who isn't already famous for writing great SF, and I'll go into some detail (with the author's permission) about how I think he does it.