The short answer, quoted from Wikipedia, is as follows
Spaghetti Western, also known as Italian Western, is a broad sub-genre
of Western films that emerged in the mid-1960s in the wake of Sergio
Leone's film-making style and international box-office success. The
term was used by critics in USA and other countries because most of
these Westerns were produced and directed by Italians. According to
actor Aldo Sambrell, the phrase 'Spaghetti Western' was coined by
Italian journalist Alfonso Sancha. In the beginning the term was used
in a derogatory sense, but over time it has become accepted as
The typical Spaghetti Western team was made up of an Italian director,
Italo-Spanish technical staff, and a cast of Italian, Spanish,
German and American actors, sometimes a fading Hollywood star and
sometimes a rising one like the young Clint Eastwood in three of
Sergio Leone's films.
If you would like to read more about it, FlavorWire posted an article called 'A Beginners Guide to Spaghetti Westerns'.
So, what makes a "Western" a "Spaghetti Western" then?
There is an article at spaghetti-western.net that does a fairly good job at describing the differences, but, to sum it up; Spaghetti Westerns are more violent, action-oriented and sparse in dialogue, and the "hero" is more often than not just less evil than the rest.