At first glance these characters with the "Androgyny" concept applied to them may appear to be of no specific gender. Although such genderless characters actually do exist (the Asari species from Mass Effect is genderless, though they appear decidedly female), this concept also applies to normal characters for whom it is simply very difficult upon first glance to make a distinction.
Players should pay close attention to the dialogue as a way to discern the true gender of such an individual. In rare cases, the gender will never be made clear, further complicating this process.
Not to be confused with hermaphrodism. A hermaphrodite is a being that actually possesses both male and female genitalia, an androgynous being is merely one with a set gender that strongly resembles the other sex.
This concept is most prominently featured in Japanese RPGs, and Japanese games and media in general. The vast majority of cases of androgyny in Japanese media concern males with a feminine appearance, but there are a few rare cases of masculine females.
The main reason often cited for the prevalence of androgynous male characters in Japanese games is to appeal to young Japanese females (usually in their teens and 20's), who make up a large segment of the Japanese gaming audience (in fact, a majority of Japanese gamers are female, according to a study). This was the reason cited for Raiden's androgynous appearance in Metal Gear Solid 2, for example. Many Otome games targeted towards young Japanese females also frequently feature, somewhat sexualized, androgynous males as love interests.
This phenomenon is not exclusive to Japan, however, but parallels the interest that many young Western females often have towards similarly androgynous-looking popstars or boyband members, though perhaps not to the same extent as in Japan. Also, back in the 1980's, androgynous-looking males were just as widespread in the Western world.