So, what is plasma? It is an 'electrically neutral, highly ionized gas composed of ions, electrons, and neutral particles. It is a phase of matter distinct from solids, liquids, and normal gases'. An example of a plasma is 'fire'.
'99.9 percent of the Universe is made up of plasma,' says Dr Dennis Gallagher (a plasma physicist), 'very little material in space is made of rock like the Earth.'
You probably remember science lessons at school where you were told that there are three states of matter - solid, liquid, and gas. The design of the atom allows atoms to combine to form rigid structures, tumble all over each other, or float freely away and around. These balances of charge, buoyancy, gravity, and shape allow matter to have an incredible number of shapes and forms. As already stated, there is another variant of matter that is none of the above, yet more common in the universe than all three put together - it's plasma.
A plasma occurs when you add so much energy to the atom that the electrons circling it move faster and faster, pushing themselves away from the nucleus. At a critical point, they break away, thus leaving the nucleus by itself. If this happens to a lot of atoms, there would be many electrons floating around and many 'naked' nucleii floating around also. In this disassociated state, matter is known as plasma.
So if there is more plasma in the Universe than solid, liquid and gases put together, where is it all? Well, the Earth isn't a very large proportion of space! It's somewhere else!
On the Earth, plasma is very rare. The most familiar example are fluorescent light bulbs where large electrical voltages tear the atoms apart. Other forms include lightning bolts and the aurora borealis (Northern Lights). The Sun itself is a huge plasma due to its incredible heat. It is now widely accepted and understood that the Sun's plasma state is what allows it to generate energy in such a controlled manner, while still providing huge quantities of it. Now, back to the previous statement... 'since all stars are plasma, plasma is the most common form of matter in the cosmos'.
Mankind is discovering that plasma has many uses. Plasma-based rocket engine technology is in development. The rockets will be able to run on very simple fuels with a much higher rate of efficiency. In the more advanced hospitals of the world, it is used to sterilise and cauterise because it is particularly effective at this task.
You may want to look at Travelling to the Stars for more information on plasma-fuelled rockets.