The term "Online Skill-Based Games" refers specifically to online skill games that are offered in a cash tournament model, in which players pay cash entry fees to play against other players in the hopes of winning cash or merchandise prizes. Some of these games are directly head-to-head experiences (e.g. chess), and others are essentially single-player experiences where a player's score is compared against other players' scores to determine a winner or winners. This is compared to online gambling where consumers play against algorithm based casino type games.

Skill gaming is legal in most jurisdictions within the North America, Europe and Asia, and is accepted by major banks and processors including MC, Visa, Diners, Amex and third party providers as PayPal, NETeller. While publicly traded companies in the skill gaming arena such as CYOP Systems (SkillArcade.com - NASDAQ CYOI.OB) and e-Universe (SkillJam - NASDAQ EUNI) are processing through major US financial institutions, online casinos are defined as illegal in North America and companies such as WorldGaming (NASDAQ WGMGY.OB) must use offshore banks. As well, online casinos are experiencing up to an 80% decline rate on North American credit card processing whereas the same processors are competing for the skill gaming business; even offering rates of less than 2.5% per transaction. Offshore casinos can expect anywhere from 6% to 10% (and up) from offshore based processors such as FirePay.

Online skill gaming has been defined as a sector of the video game industry, which has been called "recession proof" by some Wall Street analysts and the video game industry is now larger than the entire film industry and is growing at a rate of between 10 to 20% per year. Combined with the emergence of consol-based gaming such as X-Box and PS2 and the growing popularity of wireless games, this industry is expected to be the dominant form of entertainment on the Internet by 2005.

What makes skill-based gaming immune from being considered a form of gambling is the element of skill involved across all games. Skill games are predominantly based upon a player's logic, speed, dexterity and so forth, whereas traditional casino games rely primarily upon luck and chance. Gambling, by its very definition, is any activity involving chance, consideration and reward. By definition skill gaming eliminates the elements of chance.

The evolution of online gaming began in the mid 90's with free games on sites such as Pogo, Yahoo, and Riddler.com. These portals derived their income through advertising revenue including banners and email database rentals. In the late 90's the first Internet Casinos appeared, and they enjoyed a measure of success in the unregulated 'Wild West' of the North American marketplace. In early 2002, the online advertising industry suffered a collapse in advertising revenues, forcing many play for free operators to charge monthly memberships for games. Combined with a crackdown by credit card companies on Internet gambling, this lead to the growth of skill gaming. In 2002 major console providers introduced monthly fees for the right to play games online against other online users. The natural evolution is a combination of online console gaming with the ability to play for more that bragging rights; the ability to wager in real-time against competitors. The industry is not far from taking games like SOCOM and Half Life and allowing players to compete for cash.

Other games that are available in the skill format include trivia, action games such as Donkey Kong Asteroids adventure games like Doom and strategy games such as Mahjong and Solitaire.

Most games are built in Shockwave and Java with download sizes of well under a megabyte. Historically the online casino industry built games only in C++ due to security concerns, however changes in the coding of shockwave and Java in the past 2 years have mitigated these risks. Online casino operators have been slow to evolve and react to this change, while the skill gaming industry was built on front end games only.