This AI glossary defines the handful of terms small business owners actually need in plain English. A prompt is what you ask the AI, a model is the system that answers, and a hallucination is when the AI states something false with confidence. You do not need the rest of the jargon to get value.
Use this as a quick reference. To put the terms to work, read our AI audit.
The core terms
- Prompt: the instruction or question you give the AI
- Model: the AI system that generates the answer
- Generative AI: AI that creates text, images, or code
- Hallucination: a confident but false AI answer
Terms you will see in tools
- Token: a chunk of text the model processes
- Fine-tuning: adapting a model to specific data
- Context window: how much text the model can consider at once
- Assistant: a chat-based AI you interact with
Treat the figures below as third-party research and general context, not a forecast for your own business.
Why hallucination matters most
Of all these terms, hallucination is the one to remember. Because AI can be confidently wrong, a human review step is the single most important habit.
A real-world reference
Stanford HAI's AI Index tracks the field in depth if you want to go beyond the basics.
Frequently asked questions
What is a prompt in AI? +
The instruction or question you give the AI. Clear prompts produce better answers.
What is an AI hallucination? +
When the AI states something false with confidence. It is why human review matters.
What is generative AI? +
AI that creates content such as text, images, or code in response to a prompt.
Do I need to learn AI jargon? +
Only a few terms. Understanding prompt, model, and hallucination covers most everyday use.
More beginner guides on our blog.