Definition:

A direct or indirect reference to something which is presumably commonly known, such as an event, book, myth, place, or work of art. Allusions can be historical, (like referring to Hitler), literary (like referring to Kurtz in Heart of Darkness), religious (like referring to Noah and the flood), or mythical (like referring to Atlas). There are, of course, many more possibilities, and a work may simultaneously use multiple layers of allusion.

Examples:

Martin Luther King Jr. alluded to the Gettysburg Address in starting his "I Have a Dream" speech by saying 'Five score years ago..."

In medieval times, farmers often took piglets to market in a bag known as a “poke.” Sometimes, an unscrupulous farmer would place a cat in the bag instead of a pig. If the cat managed to escape, the farmer’s secret would be revealed to the buyer. Often buyers would not look in the bag to be sure they were not being swindled; they would simply pay for the pig in a poke.
We use the phrase “letting the cat out of the bag” to refer to a secret’s being revealed. The phrase “buying a pig in a poke” describes buying something sight unseen. Buying a pig in a poke is considered unwise because of the risks involved.

In Greek mythology, Cassandra, the daughter of Trojan king Priam, was loved by Apollo, who gave her the gift of prophecy. When Cassandra later angered Apollo, he altered the gift so that her prophecies, while true, would not be believed. Thus, her accurate warnings to the Trojans were disregarded, and disaster befell them.
Today, a “Cassandra” refers to someone who predicts disasters or negative results, especially to someone whose predictions are disregarded.

source: http://en.wikipedia.org/wiki/Allusion