A placebo, from the Latin for "I will please", is a medical treatment (operation, therapy, chemical solution, pill, etc.), which is administered as if it were a Therapy, but which has no therapeutic value other than the placebo effect.
Experimenters typically use placebos in the context of a Clinical trial, in which a "test" group of patients receive the therapy being tested, and a "Control" group receives the placebo. It can then be determined if results from the "test" group exceed those due to the placebo effect. If they do, the therapy or pill given to the "test" group is assumed to have had an effect.
Because some drugs have clear physiological impact, an inert pill (e.g., a sugar pill) would not be an effective placebo. That is, an inert pill could not be used to demonstrate whether an active drug with noticeable physical side effects has more than a strong placebo effect. For example, long before any psychoactive response most people can tell if they have ingested an active antidepressant or anti-anxiety agent because of their physiological effects. The same is true of strong pain relievers. Believing you have received the active drug can produce a markedly heightened placebo effect. To offset this heightened effect, it is necessary to use a psychoactive placebo, i.e., a drug that produces enough physical effects to balance the belief in the control and experimental groups that they have received the active drug. An example of the use of a psychoactive placebo can be found in the Marsh Chapel Experiment. In that Double-blind study, the experimental group received Psilocybin while the control group received a large dose of Niacin that produces noticeable physical effects.
Originally, the placebo was a substance that a well-meaning doctor would give to a patient, telling him that it was a powerful drug (i.e., a painkiller), when in fact it was nothing more than a sugar pill. The subsequent reduction of the patient's symptoms was attributed to the patient's belief in the drug. This is not how placebos are used today, as the rules that govern clinical trials now insist on full disclosure to subjects who take part. Today, a subject is told that they may receive the drug being tested or they may receive the placebo. This is not the same mental environment that produces the most powerful placebo effects, (or even a nocebo effect, see below).
Often during these clinical trials, placebos have a positive or negative clinical effect on subjects tested. Most of these effects are presumed to be psychological in nature, but placebo effects can at times be predictable and measurable. A treatment like a placebo but with the opposite result, in which the medically inert intervention produces a worsening of symptoms is called a nocebo (Latin for "I will harm").