When someone hires a friend to do a job, whether or not she's the best candidate, that's cronyism. A governor appointing his inexperienced daughter to an important staff position is one example of cronyism.
You're most likely to find the word cronyism in political discussions. It's not necessarily considered cronyism for a public figure to hire, promote, or appoint her friends or colleagues. However, if the person isn't as qualified as other candidates but gets the job anyway, it's a clear case of cronyism. The original meaning of cronyism was simply "friendship," from crony, Cambridge student slang for "old friend" from the Greek khronios, "long-lasting."