A settlement method used in certain future and option contracts whereby, upon expiry or exercise, the seller of the financial instrument does not deliver the actual but transfers the associated cash position.

Investopedia Says:
For sellers not wishing to take actual possession of the underlying cash commodity, cash settlement is a more convenient method of transacting futures and options contracts. For example, the purchaser of a cotton future that is cash settled, rather than being required to take ownership of physical bundles of cotton, pays the difference between the spot price of cotton and the futures price.

Related Links:
For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them. Futures Fundamentals
An introduction to the world of options, covering everything from primary concepts to how options work and why you might use them. Options Basics Tutorial
The credit crisis of 2008 prompted important changes to the settlement of credit default swaps. Credit Default Swaps: What Happens In A Credit Event?

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