The word "piracy" comes from "pirates", who were people who sailed on ships and stole things from other people's ships. Think of Johnny Depp in the movie Pirates of the Carribbean.
These days, people who steal digital goods like music, movies, and software are also called "pirates". And the noun that identifies this action is "piracy". The word "piracy" has a slightly negative sound, since it means "stealing". But it doesn't sounds as bad as other words like "theft":
The music industry has been completely crushed by theft.
"Theft" sounds much worse. It's also used to talk about stealing physical things instead of digital things. So if someone read this sentence, they might become confused and think that the music industry was having a problem with people stealing CD's from stores.