Otaku (オタク) is a person who is devoted, or, more often, obsessed, with a hobby or other activity, to the exclusion of all else: quite often in a solitary lifestyle. Most Japanese look down upon otaku as freaks because of the social ineptitudes that result from their obsessions.
The closest translation of the word in English is a "fanatic" (although there are times where it is used where "Nerd" is also a good translation). Though the word otaku is used in English, its meaning is somewhat narrower: it typically refers to one who is an anime or manga fan who takes his fandom a little farther than just a hobby. (Japanese are often quite surprised to learn that American otaku are proud of their status, since the term connotes such a social stigma to them.)
Strangely enough the word otaku (お宅) is actually a polite way of saying "your house" and in some cases it can also be used as a polite "you." Whereas uchi (ウチ written 家) would be the humble way of saying "house" and therefore commonly referring to one's own abode.