What is an "unspent output"? What is the meaning of the term "unspent output" in the Bitcoin protocol?
An unspent output is simply an output of a transaction which isn't yet an input of another transaction.

To take the example from ripper234's answer (in which generated coins are immediately spendable, and we don't have to wait 100 blocks for them to mature), where:


The first block contained 50 mined BTC in address A (A = 50)
The second block contained 50 mined BTC in address A, a transaction sending 20 BTC to address B, and putting the change in address C (A = 50, B = 20, C = 30)
The third block contained 50 mined BTC in address A, a transaction sending the 20 BTC from address B to address D (A = 50 + 50, C = 30, D = 20)


So, after three blocks, there are four unspent outputs:


A has two unspent outputs worth 50 BTC each
C has a single unspent output worth 30 BTC
D has a single unspent output worth 20 BTC


And there are two spent outputs:


the 50 BTC generated in the first block, spent in the 2nd block
the 20 BTC output created in the 2nd block and spent in the 3rd block


Note that unspent outputs don't merge together.  The two unspent 50 BTC outputs at address A are separate, and will remain separate at least until they are spent in a transaction