AI & SaaS glossary

The terms you keep running into while evaluating AI and SaaS tools — defined in plain English, with the trade-offs that actually matter to a founder.

Last updated 2026-07-16

AI fundamentals

Large language model (LLM)

A large language model is an AI system trained on huge text collections to predict and generate human-like language for tasks like writing, coding, and answering questions.

AI agent

An AI agent is a system that uses a language model to plan and take multi-step actions toward a goal, calling tools and reacting to results along the way.

Hallucination (AI)

An AI hallucination is when a model produces confident, fluent output that is factually wrong or entirely made up, presented as if it were true.

Token (LLM)

A token is a small chunk of text, often a word or part of a word, that a language model reads and generates as its basic unit and bills against.

Multimodal AI

Multimodal AI is a model that understands or generates more than one type of data, such as text, images, audio, and video, within a single system.

AI techniques

Retrieval-augmented generation (RAG)

Retrieval-augmented generation feeds a language model relevant documents at query time so its answers are grounded in your own data rather than only its training.

Fine-tuning

Fine-tuning continues training an existing model on your own examples so it adopts a specific tone, format, or skill without being built from scratch.

Prompt engineering

Prompt engineering is the practice of writing and refining the instructions you give an AI model so it returns accurate, useful, and consistent results.

Infrastructure

Vector database

A vector database stores text and other data as numeric embeddings so you can search by meaning rather than exact keywords.

Inference

Inference is the moment a trained AI model runs on new input to produce a result, as opposed to the earlier, one-time process of training it.

Deployment

Self-hosted

Self-hosted means running software on infrastructure you control instead of using a vendor's managed cloud service, trading convenience for ownership and control.

Business model

Freemium

Freemium is a pricing model that gives a usable product away for free and charges for premium features, higher limits, or advanced capabilities.