In the 19th century Karl Marx appropriated the term to describe "commodity fetishism" as an important component of capitalism. Later Sigmund Freud appropriated the concept to describe a form of paraphilia where the object of affection is an inanimate object or a specific part of a person. See sexual fetish for more details on this concept.
The concept of fetishism implied a difference, and distance, between so-called primitive societies (that had false models of natural events) and modern societies (that did not). Marx's use of the term effected a reversal of this opposition; rather than critique primitive religions, he used the term to critique modern societies. Marx observed that people in capitalist societies often fetishized material objects: any product that is advertized as having magical or mystical powers that it can impart to the consumer (such as certain brands of clothing, perfumes or colognes, and foods) are fetishes. Marx's theory of commodity fetishism proposes to explain this phenomenon.
According to Marx, people value objects that they can use (i.e. they have "use-value"), and most things people can use are produced through human labor. In market societies, however, people can use an object to acquire another through exchange; goods thus take on "exchange-value." In capitalist societies, moreover, there is a labor market; rather than being seen as the source of use-values, labor itself becomes another commodity and takes on an exchange-value. Thus, labor is devalued, and commodities are seen as having power over the people who produce them.
A simple example will illustrate this process: the person who owns a Cadillac (or Lexus or Bentley) has more prestige than the people working on the assembly-line that produced it. But commodity fetishism refers to more -- the the belief that the car (or any manufactured object) is more important than people, and confers special powers (i.e., beyond the power to travel sixty miles in an hour, or flatten hedgehogs) to those who possess it.
See also: idolatry; totemism; conspicuous consumption
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