Passive identification is discovering the properties of an item in a way that does not assign the name of the item to it when discovered. An example of passive identification is zapping an unidentified wand of cancellation at a dragon and hearing it cough - through this method, you discover that the wand in question is a wand of cancellation, but the game will still give the randomized appearance as the identity of the wand.
The opposite is called formal identification.