Because notes are struck by individual digits rather than the hand working as a single unit, fingerstyle playing allows the guitarist to perform several musical elements simultaneously. One definition of the technique has been put forward by the Toronto (Canada) Fingerstyle Guitar Association:
Physically, Fingerstyle refers to using each of the right hand fingers independently in order to play the multiple parts of a musical arrangement that would normally be played by several band members. Bass, harmonic accompaniment, melody, and percussion can all be played simultaneously when playing Fingerstyle.
This article provides and interesting read on the history of fingerstyle guitar.
Steel string acoustic guitars
Fingerpicking (also called thumb picking, alternating bass, or pattern picking) is a term that is used to describe both a playing style and a genre of music. It falls under the “fingerstyle” heading because it is plucked by the fingers, but it is generally used to play a specific type of folk, country-jazz and/or blues music. In this technique, the thumb maintains a steady rhythm, usually playing “alternating bass” patterns on the lower three strings, while the index, or index and middle fingers pick out melody and fill-in notes on the high strings.