A gold sink is a game mechanic that helps to control the inflation rate of the in-game economy. Without various gold sinks, the developers would have no viable means of removing excess money from the game's economy. Since coins are added to the in-game economy every time a player kills a monster, completes a quest, or finishes a random dungeon, this would eventually lead to a complete breakdown of the game's economic sub-systems. In a game like World of Warcraft, which is primarily driven by a player-created economy, this could have catastrophic effects.
This term is also used somewhat derogatorily by players to denote any in-game sub-system that might be what they consider exorbitantly expensive, from a cost-effectiveness point of view. For instance, personal mounts are quite expensive. This mechanism is effectively the opposite of income. It also ensures that players who have a knack for making in-game money have something to spend vast amounts on instead of getting bored.
Vanilla gold sinks
Examples of vanilla gold sinks, when players had much less gold:
Modern gold sinks
Examples of modern gold sinks, where money is more common:
† Price shown is the total cost of vendor reagents alone