I'm kinda chuckling at old and tired's answer. He is sounding old and tired. :^D
To be more precise, the scandal at the heart of Luther's ire was the practice of *selling* indulgences. Some devious monk was wandering around Germany claiming to give indulgences to anyone who would help him build a church. Rome did agree with Luther that the practice was abhorable, and in fact, the monk, was a con man, not with the authority of Rome.
You have to understand the concept of purgatory: Catholics believe that the souls of those who have faith, but whose faith is not so complete as to have ridded their lives of all sin, must be cleansed of their sin in the after life. This is not a denial of the efficacy of Christ's atonement; this is for those who have ascented to accepting Christ, but who have clung in part to sin. Nor is purgation for sins committed before baptism, I believe, as they are washed fully away at baptism
By accepting certain graces, identified by the Pope, those who call themselves Christians but who are struggling against their depraved will to purify themselves, may receive some measure of purification by participation in acts of contrition and works of mercy. These avts are called "indulgences."
I tell kids who ask about purgatory this (I teach 5th grade Catechism classes), to give them an idea: I call it the spiritual beauty shop, where you get ready to be in the presence of God. All those traces of sin have to be cleaned up. You wouldn't go to a wedding or special event all scrungy, would you?
People in purgatory are saved, but not yet ready to be able to handle being in God's presence because of the way we are marked up by our sins. So they go there to get all the marks cleaned up until they are ready.
When I mention indulgences to them, I say that these are things the church wants to encourage us to do because they are good for our relationship with God, and the church asks God (at this level, I don't really get into the binding and loosening stuff) that if we do these things, would he please take time off our time in purgatory for doing these here on earth.
It's not the 100 per cent technically perfect definitions, but it does give them the grasp of it. This comes up around All Saints Day because we do something where we pray for our beloved dead, both in the class and as a parish.