Fan-produced translation of a foreign-language comic, produced by scanning individual pages usually from the original (but occasionally a preexisting translation of the comic in a third language such as Chinese or French) into graphics files and then replacing the original text with vernacular translations. The paper/jpeg equivalent of Fansubs. As one might expect, this practice is most common with Japanese comics (manga), and indeed the practice arose out of the long-established fansubbing circles to take advantage of manga's sudden popularity spike in North America in the early 2000's.
A good Scanlation (also occasionally spelled "scanslation") requires a fair-quality scanner, and a good eye for which fonts are obtrusive and which are not. It's also important to carefully match the background shade when covering the untranslated text - a bright white box on a medium-gray word bubble can be painful and distracting. The best scanlations can come close to being indistinguishable from an unaltered manga page or in other words, close to a professionally licensed manga page.
Some scanners of hentai manga and dojinshi dispense with the "heavy lifting" job of actually translating foreign erotica and simply write their own scripts to match the action - dubbed a "Rewrite". This can occasionally produce something more amusing than the original, especially if it's a Gag Dub-style "translation", or an explicit parody of bad rewrites. This does not work well with Porn with Plot manga, obviously.
A major clampdown by publishers in the Summer of 2010 resulted in many Scanlation aggregator websites such as MangaHelpers and OneManga closing up shop... bad news if the manga you like are No Export for You, licensed but out of print, or excessively delayed! However, both scanlation groups and reading sites are apparently subject to the Hydra Problem. Neither are the Broken Base tendencies in how Scanlations are viewed helping: they're either valid and well-meaning (for ethical ones at any rate) or immoral violators of copyright law.
Sometimes a scanlation is useful not only to circumvent a non-existing official English translation, but also if there is censorship in the official translation.note
Another thing to keep in mind when searching out scanlations: Sturgeon's Law is in full force here. Yes, some translations are easily equivalent or even superior to an official localization, but plenty suffer from extreme literalism, odd grammatical structures, the occasional misreading, and just not translating terms at all.