Parimutuel stands for mutual betting. All the bets of a particular type are placed in a pool after deducting the house cost. This kind of betting is different from fixed-odds betting in that the payout is not known at the time of placing a the bet.
The payout is determined after the event has taken place and the pool is split to the outcome sustained. This kind of betting is common in horse racing.
An important innovation in this betting system was the introduction of a Totalizator. Nowadays, these are computers. A totalizator read the current pool and betting spread and calculates the odds and payout and show it to the public. This encouraged even more betting as it gave a feedback to the ones betting.