Apple has done a pretty good job at defining an in-app purchase, calling it "optional transactions designed to enhance an app's functionality". It also divides these transactions into three types. Permanent enhancements unlock game levels, remove advertising and add features to an app. Expendable purchases are additions that disappear once used, such as extra lives. Lastly, there are auto-renewing apps like magazine subscriptions that need to be renewed on a regular schedule.
The most important part of this education is the section dealing with how to set parental controls so that junior doesn't wipe out your credit card buying magic coins or magical weapons. By enabling restriction, children will need to get permission before making an in-app purchase.