We play games so you don't have to.
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A Let's Play, also known as an LP, is a playthrough of a video game by someone who is typically well-versed in it accompanied by commentary which may be either entertaining, informative or a mixture of both. The player will show all the ins and outs of the game, discussing both game mechanics and the game's storyline, if any, so that the audience will likewise gain a thorough understanding of the game even if they have not played it before. There are essentially two different formats for LPs, the video LP and the screenshot LP, the former of which is by far and away the most recognizable.
Video LPs are the most prevalent form of LP and typically involve the LPer playing a game and recording footage using an emulator or hooking up the console to some sort of capture device, then overlaying commentary either during the recording process or afterwards as an in-depth post-mortem analysis (which is typically spoken, but may be in the form of captions). People generally tend to lean towards doing live commentary because they find the element of spontaneity and the sincere reactions to what is happening in-game to be entertaining and attractive, but it also has the drawback of often leaving the LPer with nothing to say due to no preparation beforehand. On the other hand, post-commentary tends to lend itself well to games which have complex game mechanics and are well-suited to being picked apart, but such commentary can oftentimes be too dry and too heavy on information. It is more or less a matter of the Let's Players' personality whether they opt for one style or the other.
YouTube is well known for being the definitive (or if you're of the glass-half-empty persuasion, oversaturated) source for video LPs, with many, many people providing LPs of wildly differing degrees of quality.
Screenshot LPs are the lesser-known format which LPs can adopt. They're a more text-based format, typically taking the form of a number of screenshots accompanied by extremely verbose text describing what is happening in the screenshot and perhaps even turning it into an entertaining fanfic of sorts. This type of Let's Play involves considerably more effort than a video LP because writing something that's both tl;dr and entertaining is a Promethean task, so most people tend to eschew it in favour of video LPs. However, a well-constructed screenshot LP is definitely a worthwhile read.
Let's Play originated on Something Awful's Gaming forum when a number of people wanted to show off their favourite games in a manner extremely similar to contemporary LPs. In particular slowbeef's run through of Super Metroid was a highly influential and entertaining series and is still an excellent example of a well-done video LP.
It is still an extremely popular phenomenon.