The word has several meanings. In the most general sense, it refers to any invented story. In the sense most often used on alt.mythology, it refers to a traditional story, usually very old, which has or once had significant spiritual, moral, or social significance.
Professionals distinguish between mythology, legend, and folktale.
Legends are also regarded as true, but are set later in history when the world was much as it is today. Folklore is considered false by the people telling it, and its setting in time and space is usually irrelevant. Myths are considered sacred, legends are more often secular, and folktales aren't taken seriously, at least not literally. Although this classification is useful, there is plenty of overlap, and stories range over too much territory to fit nicely in any simple classification. The references below concentrate on myths in the narrow sense, but they include a large dose of legend and folktale as well.