A micro cap is a company with a very small market capitalization, generally between $50 million and $250 million.
Beyond small cap on the small side, micro cap companies are among the smallest of public companies. They generally trade on the pink sheets, over the counter and generally are not found on any of the major exchanges, though some may be found on the Nasdaq. Due to their small size, they are among the riskiest of equity investments that can be made. Many times, they do not have revenue, let alone net income. In the terms of mapmakers of yore, "Here be dragons."
Given that, because they are rarely followed by Wall Street -- after all, they rarely need investment banking services -- the opportunity does exist that the market has misunderstood some aspect of the company and thus mispriced the shares. For investors willing to dig into these companies, outsized returns are possible.
However, valuation metrics such as P/E are often worthless as these companies often have no net income or even free cash flow. Instead, you should focus on the business strategy and opportunity, how it generates revenue, how it plans to grow that revenue to become profitable, and what the competition is like. However, do not get all starry-eyed and sucked in by hopes and dreams. To avoid losing your shirt on these, you must be particularly hard-nosed and willing to look at many, many companies before finding the one or two gems that are worth your investment dollars. Even then, you should be prepared to lose a significant portion, if not all, of that money because even the best strategies don't always work.