In a nutshell:
Pixelation is defined as using a bitmap at such a large size or low resolution, that the small single-colored square display elements that comprise the bitmap, become visible. This effect is synonymous with digital media, particularly retro video games, where it was often undesirable. However, in some modern uses it has been used as a desired and stylistic effect. In pixelated type it is, it is used regressively, to add a distorted effect on typically smooth and perfectly formed typography.
Download the Photoshop Effect Typographic Pixelator Machine