Middle Grey / neutral grey / Zone V
Simply defined, it is the very middle tone between complete black and complete white. It is referred to as middle grey, neutral grey, or Zone V. At first I was confused by what 18% meant then I found this chart. It is solely based on reflection. The 18% comes from how much a grey card reflects back 18% of the light that hits it.
Incident light is the light that is illuminating the scene. It falls on the scene before it is reflected by it. Typically it is a more accurate light reading. When light hits an object and gets transformed and reflected that is called reflective light.
Light meters work by reading the amount of light hitting the sensor or the subject. By following that information then you can change the aperture, shutter speed, and iso to get the best exposure.
18% grey is great when used simply, but it does not work with every situation. There are times when the camera will give an inaccurate interpretation of the reflection. This is because the light meter turns colors into tones of grey. Sometimes when taking a picture of a black wall the camera meter will see it as underexposed when in reality it is actually fine. This is because the black wall is twice as dark as grey. So, therefore, the camera will read it as less than 18% and deem it as underexposed.