The word parimutuel comes from the French (pari mutuel) and means mutual betting. Parimutuel wagering is a betting system in which all bets of a particular type are combined into one pool. In horse racing, bettors aren’t vying against the “house,” as the odds are determined by what their fellow bettors do (i.e. how much money is wagered on a particular horse or combination).
Racetracks take a percentage of each pool - also called takeout - which differs depending on the type of bet, and the remaining amount is paid out to all winning ticket holders. Parimutuel wagering differs from fixed-odds betting in that the odds aren’t established until the pool is closed, which generally happens right before the race begins.
As an example, consider a three-horse race in which $100 is wagered on Horse A to win, $80 on Horse B, and $20 on Horse C. The total pool is $200, of which the track takes 10%, leaving $180 to be paid out to all winning ticket holders. If Horse C were to win, his backers would receive nine times the amount of every dollar they wagered, or more simply 8-1 odds, as you would also recoup the cost of the bet.