P2P, or peer to peer, is a specific type of file sharing. This is usually done using software which connects people over a network. You could search for any specific type of data and download it directly from a user's computer who is simultaneously uploading it. Ideally, a person would only be sharing his own personal files (documents, pictures, etc) but in reality people share everything that they have permission to and don't.
The first generation of P2P file sharing was Napster. Luckily for a music fan like myself, this allowed me and millions of other people (teenagers and adults alike) to access just about every song possible on the internet. Napster was the biggest craze at the time and although it failed at being a successful/profitable company, it opened the flood gates and changed the internet forever. Soon after came Kazaa which some may argue had much better usability and a better interface. Perhaps this is why even un-savvy adults could use it.
The Minnesota mom who was fined $1.5 million dollars used Kazaa to download illegal music. I think it was an outlandish number to fine a midwestern woman, especially given the fact that she was simply the person who downloaded the file rather then the person who uploaded the file. I think the federal government was simply trying to make an example out of her to let all people know that it could be anyone.
BitTorrent sites are the primary method of P2P file sharing these days. There isn't one that stands out and the anonymity of the hosts allow them to maintain under the radar. Our federal government could do as much as they want to regulate what happens on US servers but unfortunately they do not hold much weight internationally. It is becoming more and more difficult to regulate the world wide web and I do not think there is a bright future for eliminating these activities.
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