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The term retcon is a contracted form of the phrase "retroactive continuity". According to the rec.arts.comics.misc FAQ, the term was coined by one Damian Cugley, and its first recorded use is by comics-author Roy Thomas, where he used (and reported hearing) the term in a letter column.
In general usage, "retcon" refers to a new development in a story that changes the interpretation of past stories in a way that the original story-writer almost certainly did not intend at that time. In the most dramatic cases, it can also refer to a new development which contradicts and overrides some aspect of, or the entirety of, an earlier story.
In the most strict version of the definition, a retcon in a story is any "newly revealed" information which begs a reinterpretation of past events but which does not actually change those events. For example, at the end of Beast Wars' second season, it was revealed that Tarantulas was a lieutenant of the Predacon Secret Police and had joined Megatron to keep an eye on him. This changes the viewer's perception of Tarantulas: rather than being merely out for himself, he had been operating a very specific agenda from the start while still, of course, being out for himself as well. This development does not contradict previous stories, and adds a layer of depth to them that was not there before.
The introduction of the Autobot Matrix of Leadership in The Transformers: The Movie is a more clunky retcon. Upon viewing the movie, fans are asked to accept that Optimus Prime had been carrying the Matrix around with him for the last two years of cartoon episodes. Despite being a unique and cosmically powerful artifact with monumental importance to Autobot history and culture, it had never been relevant to the plot or even mentioned in passing. Still, there is no blatant contradiction here; the closest fans get are a few views or scans of Optimus's interior which show no sign of the Matrix's housing. There are a lot of ways one can justify the Matrix's apparent absence. So this retcon still does not really contradict anything, but it is harder to swallow.
A case from Transformers, in which a retcon redacted part of an old story instead of simply adding to it is "The Return of Optimus Prime, Part 1". The ending of "Dark Awakening" has a severely damaged, yet still clearly alive Optimus Prime steering his flagship through a fiery space battle into a booby trap set up by the Quintessons. However, at the beginning of "The Return of Optimus Prime, Part 1", Jessica Morgan and Gregory Swofford find the Autobot leader's flagship drifting through space, with a seemingly undamaged, yet lifeless Optimus aboard, and no noticeably large scale battle anywhere close. With absolutely no indications of battle damage to the flagship, Optimus's sudden lack of any signs of body damage and inactivity, and particularly the absence of the space battle from the end of the prior episode clearly qualify for a retcon here. We do, however, still end-up seeing that same flagship blow-up at the end of that retconned-scene as it was in the prior episode.
Starting with the Universe comic, and subsequent appearances in the Dreamwave Armada "Worlds Collide" storyline, and the Fun Publications Cybertron comic, Unicron was first introduced as a dimension-hopping entity and then finally established as a single Unicron moving from "place" to "place", rather than being a series of separate but similar Unicrons across all the various continuities. This change in the character's treatment (along with the accompanying additions to the Primus/Unicron mythos) is likely the most far-reaching retcon thus far, as it claims relevance to and priority over every Transformers story ever told. As a result there has been some fan opposition to it, considering the seeming impossibility of it and the contradictions evident in earlier Unicron appearances seeing as though in virtually all of those appearances, Unicron is destroyed in some form. Meaning he would also have the ability to resurrect himself across different universes. Which doesn't make much sense.
The most drastic form of a retcon, which completely invalidates a former story (or elements thereof) that's supposed to be set within the same continuity, has technically never actually been used in Transformers fiction thus far; however, Marvel would later treat the appearance of Spider-Man in issue 3 of the original US Transformers title as an anomaly, pretending that it had never happened.