Irony

Although the word irony is often used very broadly in common speech ("He expected to make a whole load of money, but ironically he lost it all"), it's best to use it precisely. Even when used precisely, it can have a number of meanings, but they all share something: there is a gap between what is said and what is in fact true. But the gap has to be significant: it can't be merely a factual error, nor even a lie; the irony depends on the audience's recognition of the gap.

Examples of some of the kinds of irony might make things clearer.

• In verbal irony (sometimes called rhetorical irony), probably the most straightforward kind of irony, the speaker says something different from what he or she really believes. In its crudest form it's called sarcasm, where the speaker intentionally says the opposite of what he or she believes, and expects the audience to recognize the dissembling: for example, "Rutgers's Hill Hall is truly a palace, suited only to kings and princes." But verbal irony needn't be so crude: more subtle kinds of verbal irony, including understatement and hyperbole, abound.
• In dramatic irony, the audience is more aware than the characters in a work (often, but not necessarily, a drama), and what the characters say takes on a new significance to the audience. A famous example of tragic dramatic irony is the opening of Sophocles' Oedipus Rex, when Oedipus, the ruler of Thebes, promises to punish the man whose sins have brought a plague upon the city. Oedipus does not know, but the audience does, that he is himself the evil-doer.
• Cosmic irony comes closest to the common usage: it seems that God or fate is manipulating events so as to inspire false hopes, which are inevitably dashed.

From http://andromeda.rutgers.edu/~jlynch/Terms/irony.html