"Drag queen" used to be a slang term for a cross-dresser or transgendered person. However, this usage is both dated and widely considered inappropriate (Canadian transgender activist Star Maris wrote a song entitled I'm Not A Fucking Drag Queen to express the difference.)
Drag queens (as the term is now used) were formerly called transvestites. However, that term is now sometimes used for someone with transvestic fetishism: a fetish for the clothing of the opposite gender role. Contrariwise, drag queens in general do not do drag for reasons of sexual pleasure. Furthermore, most transvestic fetishists are heterosexual men, whereas most drag queens are gay or transgendered. (Indeed, there is a (small) community of straight women drag queens.)
Drag itself is often thought of as a subspecies of transgender, because it subverts gender roles. However, many drag queens are cisgendered gay men in the rest of their lives, whereas transgendered people remain so 24 hours a day. Drag is best thought of as a hobby, profession, or art form rather than as a sexual orientation or gender identity.
By courtesy, most drag queens are usually referred to as "she" while in drag.
Another term, "female impersonator," can be misleading. As the famous American drag queen RuPaul said, "I do not impersonate females! How many women do you know who wear seven inch heels, four foot wigs, and skintight dresses" (See below.)
"Female impersonation" used to be illegal in many places, which inspired the famous drag queen Silvia Rivera to suggest to her friends that they should wear buttons saying "I am a boy" so they couldn't be accused of female impersonation.
Drag is a part of Western gay culture - drag queens fought at the Stonewall riots in June 1969, and drag shows are traditional at pride parades. Prominent drag queens in the Queer community of a city often serve as unofficial spokespersons, chroniclers, or community leaders.
Some members of the Queer community disdain drag queens; some feminists believe that drag consists in harmful stereotypes of women. A response is that drag is a very specific aesthetic (as RuPaul implies in the quotation above) and is not meant to satirize women in general. Furthermore, many gender theorists see drag as a subversive to gender roles.
Some are distressed by the participation of drag queens for example in pride parades, believing that that projects a harmful image of the Queer community and impedes acceptance. However, others see this point of view as intolerant of the diversity in the community, and still others simply regard drag as traditional fun that needn't be politically analyzed.
Some of the more well-known drag performers include:
See also Drag king.