Think of a bell-curve. You know the point in the middle that hits the bell where it hangs: that's peak oil.
What the bell-curve tells us is this (like Javaman said above but I'm dumbing it down):
$6
It's not 'exactly' the 'inability' to meet 'demand'. That could feasibly happen, enen after 'peak' oil... (holy god am i using apostrophes too much!)
Anywho, Peak Oil doesn't have to do with demand (even indirectly it doesn't matter). What it entirely has to do with is SUPPLY.
Imagine you have 10 dollar bills in your pocket. And you don't, and can't, get any more money other than that. That is your total supply.
Now: after me, or your friends, asking you for a couple quarters here and there, your supply starts depleting. But you don't have to worry, nickel and diming you certainly won't kill you off.
Welp, a coupe weeks now we've been getting you spare change. Now let's say you're down to $6. Still good. But what happens at $5?
The first half of your ten bucks I could borrow like crazy before you were half way depleted of your mom's allowance.
The $5 (FIVE DOLLARS) represents peak oil. You can never ever borrow out more than $5 dollars now. Ever. That's all there is.
And then, as the world is doing with oil everyday, some turd or another manages to fanagle another .10 from you. Just like America (and China) is doing to the world oil supply. We are now, at this moment, past peak oil; meaning we have already bummed down to you $5 money supply. We can ask for more, but never ever more than $5.
Get it. Hope so...