The folk music revivals in the US and UK, starting in the 1940s and going strong into the 1960s, greatly increased interest in Irish Traditional Music (ITM). Flutists at that time would play this music on any flute they had, but a substantial number had come to prefer and covet vintage wooden, conical bore, 19th century English simple system flutes with large holes (see the flutes in the photo below, whose finger holes are large for simple system flutes) because the sound and open finger holes met their needs well. The property of 19th century large-holed English flutes that was most important for ITM and folk players was the ability to produce a large amount of reedy tone, including, especially, strong low notes. Agility was also very important to these flutists, as much of the repertoire consists of fast dance music.
However, there are problems associated with using vintage 19C English flutes in modern performance. Vintage 19C flutes that can play at A=440 and are in good condition (with no bad cracks, missing parts, or bore contraction) are scarce and often expensive (desirable instruments go for thousands of dollars). The demand for suitable instruments for ITM and other traditional musics led several flute makers (independently) in the 1970s to develop simplifications and modifications of the best 19th century flutes that were less expensive. These instruments are now called "Irish flutes". This does not mean a flute made in Ireland. The term is modern and seems to have entered the English language c.1990 with the publication of S. C. Hamilton's book (see reference below). These flutes are currently used for other Celtic music (e.g. Scottish, Breton), and other Western traditional and folk music.
One obvious simplification that reduces cost is the omission of keys, which had been added to the the orchestral flute to allow it to play chromatically and in all modes. See 19C-keys. Folk tunes for flutes (and for fiddles) are very often set in modes with one or two sharps, so the keys are not often needed and are thought to get in the way of speedy playing. Nevertheless, some players did want keys and a number of makers of Irish flutes now offer instruments with up to eight keys, like original 19th century flutes. However, these keyed Irish flutes (which are not inexpensive) are different in playing qualities from the 19th century orchestral flutes. One popular form of a keyed Irish flute is shown below.
Since Irish flutes were made for traditional players, makers soon introduced modifications specifically for those players. In particular, the intonation was adjusted. For example, the F# on orchestral simple system flutes tends to be flat; this is one of the compromises built into the simple system, and 19th century flute methods advise the opening of an F key when playing F# to improve venting. The F# on an Irish flute is well in tune and the player need not be concerned with moving a finger onto a key for that note. A sharpening of the E and the subsequent removal of the need to use the D# key when sounding E also simplifies execution. The sharp A and B, and flat low D, found on many simple system flutes are alleviated.
In our opinion, the term "Irish flute" should never be used except for wooden, conical bore flutes that produce a lot of sound (so, usually with large holes). We might prefer to reserve it for those modern flutes made expressly for traditional music, but the term has entered the language and we are not in charge. In any case, a baroque or other 18th century flute or replica is never an Irish flute even though Ebay sellers, for example, will often use the term to attract buyers.
Irish and other folk players tend to use different playing techniques than classical flute players. Some of these techniques were and are used all over the world on unmechanized flutes with open (unencumbered) finger holes and others were borrowed from bagpipers. We note that there are numerous modern players who do a fine job on ITM with modern flutes, but they do use traditional techniques in so far as possible.
For example, the tongue is not generally used by traditional players. Notes (in particular, of the same pitch) are separated with very quick movements of a finger closing or opening a finger hole. These crisp movements (called cuts) momentarily produce sounds, but the goal is to do this so quickly that no pitch is really heard. (If done too slowly, the sounds would be considered out of tune.) "Ornaments" in traditional performances are usually forms of articulation; they are not intended to be melodic. Glottal stops are in frequent use. (But there are melodic ornaments too, including divisions and the "glide" where a finger is more-or-less slowly withdrawn from its hole to produce a portamento.)
This exposition is necessarily incomplete and there will be exceptions to everything. See the reference below.
Hamilton, S. C. The Irish Flute Player's Handbook, Breac Publications, 1990 (first edition), 2008 (2nd edition).