Photochopping involves using a photo editing program to edit a picture. It's regarded by many as a visual parody, though some people feel it isn't much better than copyright infringement. Photochopping is photo fakery, but the goal is humor, and not outright fraud.
In general, the goal of photochopping is to produce a visual joke of some sort. This could involve changing a product cover (like changing the Coca Cola label from "Coke" to "Croak" or inventing Jalapeno flavored baby food jars), adding elements to a picture (like people who weren't there or items that change the meaning of the picture), or even distorting a familiar image so that it's recognizable but different.
Since the idea is to change an existing photo, most photochopping projects don't involve creating anything from scratch. The main focus is on merging existing images or making changes to recognizable ones.
Photochopping isn't the original name, of course. Originally, it was called "Photoshopping," but the people who enjoy it have changed the name to avoid receiving angry letters and emails from Adobe. Of course, it's still pretty easy to find websites that still use the original name.
Several famous (or infamous) images sent around as email jokes originally started out as photochopped images. One, showing a historical supercomputer complete with steering wheel, and another, showing a shark apparently attacking a helicopter, were both good enough to fool quite a few people.
Some websites sponsor photochopping contests. The site sponsor will post an original picture, as well as any rules or restrictions. The entrants are then given a set amount of time to return their submissions, and the prize goes to the best image that stays within the rules. Some sites even take the concept further, with "Tennis" matches, where people take turns making further a series of changes to the picture.