From Nordic Larp Wiki
Bleed is when emotions bleeds over between player or character, in either direction.
Snipped from the Jeepform dictionary, in 2009:
Bleed is experienced by a player when her thoughts and feelings are influenced by those of her character, or vice versa. With increasing bleed, the border between player and character becomes more and more transparent. It makes sense to think of the degree of bleed as a measure of how separated different levels of play (actual/inner/meta) are.
Bleed is instrumental for horror role-playing: It is often harder to scare the player through the character than the other way around. An overt secluded dice roll against a player's perception stat is likely to make the character more catious.
A classic example of bleed is when a player's affection for another player carries over into the game or influences her character's perception of the other's character.
Many jeep games rely on bleed either to influence player's actions or to achieve higher purposes in the premise. For example, Fat man down uses bleed to encourage the players to reflect over society's treatment of fat people. Playing Doubt close to home regularly causes bleed as a consequence of using own experiences in the game and re-living relationship situations or reflecting on relationships. Sometimes, the entire purpose of a game is to create bleed.
Types of Bleed
People often refer to bleed-in when it is the player's emotional state that affects the character. For example, a scared player may lead to a character that is jumpy, nervous, or overly cautious. Bleed-out is used to refer to bleed in the other direction - here it is the character's inner state that affects the player. So, a character who is in love with another character may bleed-out into the player feeling affectionate towards the other character and/or the other player.
Origin and Other Sources
The term bleed was coined at Ropecon 2007, by Emily Care Boss