Specifically, they think of it in the bond terms (not making principal and/or interest payments in a timely fashion). Because our current use of the term is with respect to a government, the more relevant aspect is this: failure to meet one's "obligations". Which is more than just making payments to debt holders.
The finance/bond aspect that _is_ important is the "timely" part -- but it's hard to know precisely how important. Almost everyone would rather have their money late than not at all. I'm bringing this up because I'm hearing and reading news coverage that indicates that people are not as upset by the idea that somebody got their money a little late as they are by the word "default" -- and I think that those should be completely equivalent. I'm not sure why they aren't.
While I'm here:
The "current" recession has been over for a while. Real GDP hasn't been falling for a while now. Some people are still talking about the possibility of a "double dip" recession (falling GDP, then a short period of rising GDP, then falling again), however, we've been out for long enough now that even if we dropped back into it, it would not meet many definitions of a double dip.
And while I'm at it, there are some Republican presidential candidates out there bandying about number of jobs supposedly promised by Obama that are risible.
I saw the clip of Santorum on Countdown and this is the first coverage that shows up if you google "santorum 240 million jobs". You may not be as amused as I was. I'm prepared to allow _one_ order of magnitude error between friends. But Santorum is not a friend, and this is _two_ orders of magnitude. I don't think that many people can legally _have_ jobs in this country. An error of this flavor indicates a degree of ignorance of the size of our population that is probably incompatible with good governance.