Liqueurs are one of the most notoriously difficult categories of alcohol to define, and the advent of flavored or infused spirits such as vodka, has blurred the boundaries further. Ultimately liqueur’s point of difference is the addition of sugar.
The word liqueur comes from the Latin word "liquefacere", meaning to melt or dissolve. This is a very early reference to the practice of flavoring spirits with various organic agents.
The very first liqueurs are thought to have been medicinal. Monasteries around the world developed their own remedies for various ailments made from a base spirit enhanced by whatever herb or fruit extracts were available. Widespread international trade in the 16th Century revolutionized the liqueur world when new ingredients and spices became available in Europe.
Liqueurs derive their flavor from the extracted essence of their ingredients. This is then added to the desired base spirit (which is usually, but not always, neutral), along with sugar, coloring and water.
There are four main methods used to extract the essence from desired flavor agents: maceration, infusion, distillation and percolation. Some of the more complex liqueurs may use more than one method of extraction as certain flavor agents are better suited to different processes.
Maceration refers to the process of soaking a bruised or pressed flavor agent in alcohol or water to extract its essence. Infusion involves the same process, except the ingredients are heated.
Distillation is the reductive process used to create a concentrate of flavor from macerated flavor agents. (That is, the maceration process is taken a step further, in which the essence is reduced to a highly concentrated liquid.)
The most delicate method of flavor extraction is percolation, also known as steam distillation. Water or alcohol may be steamed or dripped through the flavor agent, which acts as a filter and imparts its essence on the steam or liquid.