Recently, I was asked this question and I thought I'd answer it. The acronym means, Art Card Edition and Original. ACEO's can be original artworks or work that has been printed into several editions. The size is 2.5 by 3.5 inches and can fit in a baseball collection sleeve. They were originally meant for artists (known as ATC's) to trade to one another as a way of sharing their work and as a form of business card. It later changed from this into one where people, regardless of being an artist or not, wanted to trade, make or collect them.
The interesting thing about ACEO's is they are not a new idea. They stem from the miniature art form of uniquely small works and highly coveted by collectors. There are no rules for the Miniature art piece, hence, they can be small sculptures, etc.
With the ACEO's the only rule is the piece needs to be 2.5 by 3.5 inches. Some artists try to find ways of going around this or creating new levels with their work. It's always interesting to see what people come up with and I highly recommend start creating a collection...or exploring the art form for one's self. It's a lot of fun and very interesting to see the variety of art.