Software cracking is software hacking in order to remove encoded copyright protection. Distribution of cracked software (warez) is generally an illegal (or more recently, criminal) act of copyright infringement.
Software cracking is most often done by reverse engineering.
The passage of the Digital Millennium Copyright Act made software cracking, as well as the distribution of information which enables software cracking, illegal in the United States.
A good example would be a "No CD" crack, which edits the program so that the CD is no longer needed to execute the program. Another example occurs when businesses break the copy protection of programs that they have legally purchased but that are keyed to particular hardware, so that there is no chance of downtime due to hardware failure.