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RolStoppable said:

What I believed it to be are references and nods to past games that only fans would be able to truly appreciate. Something like in Final Fantasy IX where a weapon shop in one of the big cities of the first continent houses Cloud Strife's sword (Final Fantasy VII) and offers a funny remark upon examination of the object. Or the trophy room in Super Smash Bros. games which has lots of cool stuff to look at for Nintendo fans. That's what fan service meant to me.

But apparently fan service stands for shameless exploitation of female characters that adds nothing to the games themselves. I liked my interpretation a lot better because it is more respectful of the medium and gamers alike. That other thing (the exploitation) should go with the much more appropriate term fap service.

The term covers both cases. It's just a question of what they're a "fan" of. Although I wouldn't call the trophy room in Smash a case of fan service.

More strictly, though, it's a little more towards the exploitation case than the "easter egg" case. It covers situations where something is put in for the sake of "fans", even if it detracts from the experience. It's where the creators prioritise existing fans over expanding the fandom. The Cloud Strife sword thing is an easter egg, an inside joke, not really fanservice.