So, what is Bollywood? Well, perhaps the best way to explain it might be to borrow this explanation from a Bollywood site - which explains what a musical is. :-)
What is a Musical?
This concept is not very well known in India but its popularity rivals that of Bollywood movies in India. Simply put, it's a simplified and "live" version of our movies. There is a plot, a cast which enacts it, plenty of music and most importantly it is enacted live in front of the audience.
So, if we reverse it, a Bollywood movie is like a musical, only it's on film, and is apparently more complicated. ;-) It's worth noting though that, perhaps contrary to popular belief, not all Bollywood films are musicals.
It has been called the most successful movie industry in the world, and while I have no facts to back that up, I see no reason to argue with it either. It has a huge following, and is something that is unique to India. However, they have yet to make an impression on Western audiences, most of whom are only vaguely aware of the existence of the Bollywood industry.
For lots more information on current Bollywood productions and news, check out these sites: