Masternode is a full node of a cryptocurrency and it keeps a full copy of the blockchain, just like a wallet. But it's different because it performs other important functions like helping perform private and instant transactions, enbling governance, voting, treasury and stuff like that. It takes a certain amount of coins to be locked in the wallet to set up a masternode and it generates rewards (much like staking). Currencies that have such functionalities are called masternode coins.

Hope that helps.