NSP stands for Nintendo Switch Package, which is a file format used for Nintendo Switch games and updates. NSP files are essentially containers that include all the necessary data for a game, including its code, assets, and metadata. These files are used for both digital distribution through the Nintendo eShop and for physical game distribution, where they are stored on game cards.
Modders use tools like the Goldleaf Application or Tinfoil to install these files onto a Switch running Custom Firmware (CFW).