1. A variable referred to in a function, which is not an argument of the function. In lambda-calculus, x is a bound variable in the term M = \ x . T, and a free variable of T. We say x is bound in M and free in T. If T contains a subterm \ x . U then x is rebound in this term. This nested, inner binding of x is said to "shadow" the outer binding. Occurrences of x in U are free occurrences of the new x.
Variables bound at the top level of a program are technically free variables within the terms to which they are bound but are often treated specially because they can be compiled as fixed addresses. Similarly, an identifier bound to a recursive function is also technically a free variable within its own body but is treated specially.