Tacit knowledge is knowledge somebody has that they cannot readily put into words: how to judge a situation, how to do something skilled, what feels wrong about a case. It is usually contrasted with explicit knowledge, which is whatever has been written down. The distinction is real and the plan people build on it is usually wrong.
The definition, and where it comes from
The term is from the philosophy of knowledge and describes what a person knows without being able to state it: the classic examples are riding a bicycle and recognising a face. In a company it covers judgement about ambiguous cases, and the honest test is whether the person could write instructions somebody else could follow.
Why the plan built on it usually fails
Programs that sort knowledge into tacit and explicit end up trying to convert the first into the second, and that conversion is the hardest and least reliable work in this whole area. Meanwhile the large amount of material that is simply explicit knowledge nobody happened to write down goes uncaptured, because it does not feel like a worthy target.
The more useful test
Ask not whether knowledge is tacit but whether somebody else could act on it if it were written. Where the answer is yes, write it, whatever category it belongs to. Where the answer is no, the only mechanism that moves it is a person working alongside another person, and no base is going to help.
Questions people ask about tacit knowledge definition
Can tacit knowledge be captured at all?
Partly, through cases rather than principles. A short account of a real situation, what looked true and what turned out to be true, transfers more than any attempt to state the underlying rule.
Is a knowledge base only for explicit knowledge?
In practice yes, and that is not a limitation worth apologising for. Most of what a company needs written down was always explicit and simply unwritten.
Does the distinction matter when choosing software?
No. No product captures judgement, and every product in the category handles written answers. Choosing on a vendor's claim about tacit knowledge is choosing on the one thing they cannot deliver.
What should we do with the term in practice?
Use it to set expectations rather than to plan work. It explains why the retiring expert's knowledge will not all survive, which is worth saying out loud before somebody promises that it will.