It's a 2D sprite based fighting game engine that lets you import characters and stages from literally any fighter ever made (even some non-2D ones too!).
Sadly the engine is closed source and is kind of abandonware but it's kept alive by fans over the years.
There's so much you can do with it. Sure a lot of it is jank, but thanks to fans it's a very reliable way to play sprite based fighting games on PC outside of emulation.
MUGEN is like the RPG Maker of fighting games lol
You can have Sailor Moon fighting Homer Simpson. You can pretty much add any character you want. There are some MK fangames that add pretty much all the Mortal Kombat characters into one game. All with unique fatalities and stuff.
As a kid I would have died for this. All we used to do in school was dream up combos like Goku vs. Cloud or Wolverine vs. the red power ranger.
I think the game that came closest to MUGEN was MK Armaggedon, which had literally all the MK characters in a single game, plus a character creator. It was really cool, but the boss characters were really broken lol.