A pip is the smallest conventional unit of movement in a currency pair's price. For most pairs it is the fourth decimal place, 0.0001. If EUR/USD moves from 1.0850 to 1.0851, it has moved one pip. For pairs quoted against the Japanese yen, which trade at around 150 rather than around 1, a pip is the second decimal place, 0.01.
Pips exist so that traders can talk about movement without reference to the size of their position. "The pound fell 80 pips" means the same thing regardless of whether the speaker had a small position, a large one or none at all.
Pips and points
Most brokers now quote prices to five decimal places for most pairs and three for yen pairs, one place beyond the pip. That extra digit is sometimes called a pipette or a fractional pip. MetaTrader 5 works in points, and a point is the smallest increment in the quoted price, whatever that is. On a five-decimal broker, one pip is ten points.
This matters more than it sounds. A stop loss of "50 points" on a five-decimal broker is five pips, not fifty. Traders moving from a four-decimal broker to a five-decimal one, or from a description written in pips to an EA setting written in points, regularly get this wrong by a factor of ten.
Valuing a pip
What a pip is worth in money depends on the size of the position and the currency the account is held in.
For a pair whose quote currency is the US dollar, such as EUR/USD or GBP/USD, one pip on one standard lot of 100,000 units is worth $10. On a mini lot of 10,000 units it is $1, and on a micro lot of 1,000 units it is 10 cents.
For a pair whose quote currency is not the dollar, the pip value is fixed in the quote currency and has to be converted. One pip on one standard lot of USD/JPY is 1,000 yen. At a USD/JPY rate of 150, that is about $6.67. On EUR/GBP, one pip on a standard lot is £10, which is convenient for a sterling account and needs converting for any other.
You buy 0.2 lots of GBP/USD at 1.2702 with a stop loss at 1.2652, 50 pips below. One pip on 0.2 lots is $2, so the stop represents a risk of $100. If your account is in pounds and GBP/USD is 1.27, that is about £79. Whether £79 is an acceptable amount to risk depends on the size of the account, which is the subject of the page on position sizing.
Gold and indices do not use pips in the same way. Gold is quoted in dollars and cents per ounce, and a move of $1 on one lot of 100 ounces is worth $100. Indices move in points and each broker states what a point is worth per lot in the contract specification.
Every risk-based EA turns a stop distance into a position size, and to do that it needs the value of a point on the symbol it is trading, in the account currency. A good EA takes this from the broker's contract specification at the moment it places the trade rather than from a stored assumption, because the value changes as exchange rates move and differs between brokers and account currencies.
The pips-against-points confusion is also the most common cause of an EA behaving unexpectedly after installation. If a setting expects a distance in points and you enter pips, stops will be ten times too tight. If it expects pips and you enter points, they will be ten times too wide. The documentation for any EA should say which unit each setting uses, and if it does not, the first thing to do on a demo account is check.