I don't hear this term bandied about very often, probably because it's more associated with screenplays than novels, but plot devices apply to both mediums. It's important for writers to know what they are and how to use them.
What, exactly, is a plot device? It can be an object--often a character, sometimes an event--that affects a story situation to ultimately drive the plot in a desired direction. Are plot devices good or bad? Like most writing tools in our toolbox, it depends on how you use them. Used the wrong way, they can result in a trite, contrived story that has readers rolling their eyes in disgust. Used the right way, you'll have an engaging story that keeps readers flipping pages faster than our friend punches his plot device button.
A plot device, as demonstrated in the above short film by Red Giant TV, is standard for most genre fiction. It's how we make our stories work. The device in Lord of the Rings is the ring, in Raiders of the Lost Ark it's the Ark, in Casablanca it's the travel papers, and in Pulp Fiction it's the briefcase.
Character traits can be plot devices, too. In Vertigo it's the character who fears heights, in Memento it's the character who can't create new memories, in Star Wars it's Luke using the Force, in The Magic of Belle Island it's the disabled writer in the wheelchair (damn good movie), and in The Sixth Sense it's the boy who sees dead people.
How about situation plot devices? In Back to the Future we have a teenager stuck in the past, in Titanic we have the sinking of the Titanic, and in War of the Worlds we have the attack by evil aliens.
Wouldn't you agree that in most, if not all, the stories I just mentioned, the plot devices are what made them memorable? We don't love them in spite of their devices, but because of them.
So if plot devices are necessary for commercial genre fiction, why is the term frequently used in a derisory manner? Because some plot devices have been abused and have thereby acquired a poor reputation.
What is a bad plot device?
Here are a few to watch out for:
Object of Attraction: This is an item that mysteriously has everyone wanting it, which creates artificial conflict. The object of attraction is also known as a MacGuffin. The nature of this object is rarely germane to the story, but it has intrinsic meaning for the characters. The MacGuffin in and of itself isn't a bad device, but it's the lack of a logical reason for wanting it that makes it a problem.
Object of Disaster: Like the MacGuffin, this object has enigmatic properties, but it automatically corrupts anyone who uses it. If it has a plausible reason for doing what it does, it might be acceptable. Otherwise, it's just a contrivance used to manipulate the reader.
The Designated Hero: He, or she, is not one bit heroic, yet has been assigned the title of hero to serve the plot. These people are given a get-out-of-jail free card, absolved of all responsibility, even if their actions result in mass deaths. Why would a writer create such a douchebag character? Because the writer must have him do whatever is needed to satisfy the plot.
Deux ex Machina: Directly translated it means "god in the machine." Everyone's favorite (not). This is a plot device whipped up out of nowhere that gets the hero out of trouble. It pops up just in time to save the day. I don't need to tell you why this is bad.
Diabolus ex Machina: As you may have guessed, this translates to "demon in the machine." It's a device from out of the blue that gets the hero into trouble.
Magnetic Plot Device: Its very presence makes things happen for no apparent reason. For example, a mystery about an unsuspecting dog walker/mailman/dental hygienist with no connection to law enforcement stumbles upon a murder and takes it upon him or herself to solve it. Why? Only the magnetic plot device knows.
The Coincidence Device: Being at just the right place at the right time; narrowly missing/escaping/running into something; meeting up with someone who's the last person the character would imagine meeting up with, etc. This device smells like contrivance to me. For a coincidence to be marginally believable it must be organic to the plot. It should make sense, not simply be convenient.
I could go on, but the point I want to make is that poorly executed plot devices can turn a potentially good story into a bad one. Aside from being the result of lazy writing, these devices don't work because they try to run the show all by themselves. A story needs more than a plot. It needs characters with thoughts and emotions and relationships. Notice the one thing these examples have in common: A lack of human motivation. When devices come solely from an external source without influence from an internal one, it's an epic fail.
I'd intended to write just a few paragraphs on this subject, but I guess I went a little overboard. There are more bad plot devices that I didn't go into, so if you think of some, feel free to add them in a comment.