Augmented Reality is when you add things to reality - these days, with a computer. The most common application currently is looking at the world through your mobile device (phone or tablet) camera and having the device overlay extra information relevant to your location or what you are looking at. Location may be determined by GPS or by a marker. What you are looking at can be determined by shape recognition or by marker. This type of thing might be used for locating the nearest coffee shop or overlaying virtual clothing onto yourself in a boutique.
Goggles will most likely be the next wave of consumer products. Google Glass is just the tip of the iceburg and really only handles information at the moment. Full visual overlays will provide for much more artistic and entertainment creation. Cyborg pioneer, Steve Mann, is pictured above. Dan Zen grew up with Steve during the formative years and has many sketches and prototypes of related technology including "Digital Glass" back in 2000. The Trippy app by Dan Zen is a sign of more recreational usage as it kaleidoscopes, inverts and posterizes your view, provides blend modes and op art overlays, etc. There are many more artistic uses of overlays for instance, having animated companions - perhaps guides, perhaps friends.
A popular Augmented Reality usage was marker based control of 3D images. This trend may have come and gone but may find a permanent home in gaming, etc. The Sheridan IMM students made 3D IMM logo Flash invites in 2009. We also served virtual sushi on a plate at the open house.
Augmented Reality and Diminished Reality are subsets of Mediated Reality. Dan Zen has been pioneering Mobile Mediated games with his launch of Touchy in 2010 (on Dragon's Den) and follow up game Tilty in 2012.