Derez is a slang term for de-resolve, the process of an avatar or other construct being removed from a Virtual World program.
Derez events can occur due to a variety of events, such as program instability (CAP: "Pilot") or if a player's avatar is killed (CAP: "There is Another Sky").
To other participants in the simulation, a derezzed avatar "sparks" out of existence as it de-resolves into lit gridlines.