An OTC trade is when a buyer and seller trade BitCoin directly between each other. Sites like LocalBitcoins.com are the most common way for people to trade this way. Lots of people (like myself) use BTC brokers as they tend to be cheaper. There are also businesses out there where you can walk into an office and buy or sell for cash which is another form of OTC trading. Many chat groups exist for BTC trading and this is very popular in China now for obvious reasons.