Spec work is work that a creative individual is asked to do in the speculation that it may or may not be bought, purchased, or commissioned.
About a year ago I was asked to bid on creating the design work for a magazine for a small liberal arts college. Not a problem. I provided the potential client with a digital portfolio of my previous work on magazines as well as other projects and also provided a cost break down of what I would charge.
Then I get a further phonecall. We really like your work, they say, but we'd like to see a 4-page page mock up of what our magazine would look like if you redesigned it. At this point, my spidey sense is tingling and I politely agree to the request as long as they reimburse me for my time. We consider this an "audition", I am told, and they will not pay for my services. This is spec work. Thanks, but no thanks, was my reply.
Here's my point of view. If you're a lawyer, a client doesn't come to you and say, I want you to write my will. When it's done and if I like it, I'll pay for it. As a creative professional I am not jumping through hoops for a job without remuneration. I have an art degree and 15 years experience in advertising and design. If a client can't look at my style and the scope of my work and put their trust in my services, they are not a client I want to do business with.
This position is not unique or weird, in fact it is a movement that many design professionals are promoting as a way of preserving the integrity of our business. It communicates to the business world that artists need to be taken seriously.
So...the next time a potential client asks you as a visual artist to "audition" for a job...just say no.