A fuge is short for refugium, it is basically a separate tank where water from your main display will be 'fed' into it. It will contain a substrate of some kind, whether it is sand or mud, some macro algae to help with nutrient export and a few critters such as snails and maybe hermits. Generally the fuge will need to be lit and this maybe on 24hours a day depending on what you have in it. Mine is on a reverse time period, so when the main tank lights are on the fuge is off and vice versa. The other nice thing is that your pods have a safe place to live.
Most people will incorporate a fuge within their sump as this is easy to accomplish, whilst others who do not have a sump may opt for a hang on style.
Hope this answers your question.
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80gal with live rock (35kg/70lbs), 30gal sump, refugium with live rock, chaeto and DSB, Bullet-1 skimmer, Fluidized Reactor, T5 lighting (6 tubes), 4 x Koralia 3's. | 
