1.
stuffed animal; plush toy
A soft toy made of fabric and stuffed with filling, often in the shape of an animal or character.
2.
mascot costume
A large costume worn by a person, resembling a character or mascot.
ぬいぐるみ has two meanings: a soft stuffed toy (sense 1) and a full-body mascot costume (sense 2).
Etymology
From 縫う (to sew) + くるむ (to wrap). Literally, something wrapped by sewing.
TYPES (sense 1):
Cultural note
Stuffed toys are popular among all ages in Japan, not just children. UFOキャッチャー (crane games) at arcades are a popular way to win them.
USAGE (sense 2, mascot costume):
Used at theme parks, events, and promotional campaigns. ぬいぐるみを着る means to wear the costume, though 着ぐるみ is the more common word for such a costume. The person inside is sometimes called 中の人 (the person inside).