“ICO” stands for Initial Coin Offering. Development of a cryptocurrency can be very expensive. Moreover, because cryptocurrencies usually also work as an economy, they need to have sufficient value to serve that economy effectively. An ICO is a proven and effective way of raising the funds necessary to get a cryptocurrency off the ground.
In general, an ICO works by offering coins or tokens in exchange for investment, in the form of their new cryptocurrency. Once the ICO period is over, the coins or tokens will be distributed to investors. This is an important secondary function of an ICO. Distribution is key for effective decentralisation. An ICO allows a project to start with a level of distribution which should hopefully make it difficult to stage an attack against the network.