Plugs are actually small sections of sod, often circular in shape.  In the South, they're often used to establish warm-climate lawns, such as zoysia or Bermuda grass.

You can rent a plugging tool to make plugs from existing turf, and then use the same tool to dig holes in the area where plugs will be planted.  Most plugs vary from two to four inches in diameter and are planted about one foot apart.  Apply fertilizer after digging holes, but before setting plugs.  For planting a new lawn, two-inch plugs are just as good as larger ones.  Use the four-inch size for filling in any bare spots that might appear in old lawns.

Once planted, plugs provide centers of growth that eventually fill into complete turf.  Plugging is much more economical than sodding, with a square yard of sod yielding around 300 two-inch plugs--enough to plant 40 square yards!  But complete fill-in growth is slow.