In general, concept art is a sketch or painting that conveys artistic direction. It is often highly creative, without concern for e.g. technical limitations.

Concept art is often a rough sketch, just enough to convey a particular vision.

Some people consider concept artists unnecessary or a luxury. I think many professional game artists are expected to be able to do concept art in addition to technical art (e.g. creating final assets to be used in a game).

I think most foss projects aren't lucky enough to have concept artists, but they could be especially useful. Many foss projects are led by left-brain programmers, so it's rare for foss games to have a strong art direction. Without an art direction, technical game artists will tend to make art that easily fits into the tool set instead of making what's awesome.

Although concept art is usually in sketch form, if the sketch is too rough then it's useless -- it should convey enough details to the technical artists to create real assets. If the sketch is too finished it might not leave the technical artist enough wiggle room to work within technical limitations.

Most concept art these days for games are digital sketches (mostly 2D). Sometimes people do character concept sketches as 3D sculpts (e.g. in zbrush). Photos aren't great for concept art because a technical artist already knows what the real world looks like. Concept artists help make unreal worlds.

Note, what I mean by "art direction" is an overall, consistent, unique, artistic style. Games can look technically good but lack the style that a good art direction brings. A game might have very realistic graphics, but could end up looking quite boring and indistinguishable from many other games. Some people say that warfare fps games lack art direction -- by trying to be gritty and realistic they end up with a foggy soup of browns and grays.

A good art direction might use exaggerated proportions for characters, or intentional use of colors to convey meaning. A great art direction will make sure that every aspect of the game (songs, sound effects, voices, textures, fonts, even advertisements and websites) add to the feeling of the game. Games that do a great job of conveying mood, atmosphere, or attitude often do so because of a strong art direction. Famous examples of strong art direction: Diablo 1, Team Fortress 2, Shadow of the Colossus.

Concept art can take many different forms.  I think a lot of it depends on whether the concept is by the same artist who is going to make the finished asset.  For example, I generally just do a rough sketch of what I'm going to make because I mostly have the idea in my head, but I need to work out the proportions and get a general idea if the idea looks good on paper or not.  Also, some concept art is more of a general idea of an event, scenario, setting, or even game mechanic, rather than a blueprint for a particular art asset.

Both of these are concept art by the same artist for the same game, but very different from each other in style and function.

http://blog.wolfire.com/2008/12/concept-art-to-finished-asset/

http://blog.wolfire.com/2009/09/overgrowth-concept-poster/

Besides the 2D artist doing concept art for his own work, I think a very important place for concept art is to show what a 3D model should look like. Often times, the 2D artist has a good idea what the 3D models should look like (or the lead artist is a 2D guy), can draw a sketch of them and the modeler can then pick it up and model them. AFAIK, Most 3D modelers love to have some reference when they model.

This is an example of concept art made for that purpose (to just show how it should look like, as base for 3D models and icons) by our lead artist moOshiE.

I think this is a nice example that shows how concept art can help to get nice 3D models:

http://opengameart.org/content/sci-fi-containers

oh and I remember glest has very nice concept art including a picture of the final 3D model on their website.